The Maharashtra government has reduced by 3 percent the stamp duty on housing units till December 31, 2020, a move aimed at helping an ailing real estate market that has been hit hard by the coronavirus outbreak.
From January 1, 2021, to March 31, 2021, the reduction in duty will be 2 percent, the state cabinet that met on August 26 decided, staggering the cut in one of the busiest realty markets in the country that includes Mumbai, where space is at a premium.
“The phased reduction in the stamp duty rates from the present 5 percent in Mumbai and Pune to 2 percent (until December 2020) and 3 percent (January - March 2021) is a much-awaited measure from the government of Maharashtra as the residential real estate markets in these top two cities are reeling under pressure,” JLL CEO & Country Head (India) Ramesh Nair said.
In Maharashtra, stamp duty charges are 5 percent for cities like Mumbai, Pune, Nagpur and Nashik and 6 percent for others. The rates in other major states are between 5 and 8 percent but in some places, lower stamp duty is charged if the property is bought in the name of a woman.
Saddled with unsold inventory, developers had been demanding lowering of the duty to boost sales that have taken a hit during the lockdown.
Also read: Real estate stocks jump as Maharashtra govt slashes stamp duty to 2%
The Mumbai Metropolitan Region, or MMR, is feeling the heat as well. Before the coronavirus struck, around 18,000 properties were registered during the January-March period but they dropped to 5,600 in July, Pankaj Kapoor, founder and managing director, Liases Foras Real Estate Rating and Research Pvt Ltd told Moneycontrol.
Overall sales were down by 70 percent, he said.
The duty cut will not only result in direct savings for homebuyer but will also hasten deal closures to make the most of the incentive that kicks in from September 1.
Also read: Covid-19 impact | Barter housing stock held by vendors and contractors being offloaded at 15-20% discount in Mumbai
Though temporary, it was a strong boost for dampened market sentiment and would help in reviving sales, Nair said.
Low prices, home loan rates at their lowest, credit-linked subsidy schemes, sops by developers and now reduced stamp duty—homebuyers never had it so good.
But some experts are not convinced.
Also read: Residential property prices, rents fall 20-25% in big cities
The state government had done its bit but the Centre should come up with tax sops and the builders need to come up with attractive offers for homebuyers to sign on the dotted line, they say.
“An entire package is the need of the hour,” Kapoor said. Lower stamp duty may motivate fence-sitters but won’t be enough to push demand as homebuyers were facing issues such as job insecurity in an uncertain economic climate, he said.
According to Liases Foras, 2.8 lakh units remain unsold in MMR and 9.75 lakh in the top eight cities.
“This decision by the state government will surely ensure that unsold inventory in the state will stop rising further but it will take another six months before the stock comes down,” Kapoor said.
Also read: COVID-19 impact | The big daddy of Mumbai’s real estate offers 20% discount on properties
Show me the money
So, how much does the stamp duty cut amount to?
For a Rs 1-crore apartment, a buyer now pays a stamp duty of Rs 5 lakh. Charged at 2 percent, it will come down to around Rs 2 lakh – a saving of Rs 3 lakh.
Is it attractive enough for homebuyers? Anarock Property Consultants did some math for Moneycontrol.
A 500 sq ft property in Mumbai can cost Rs 14,100 per sq ft, which is the basic price. Parking charges can run up to Rs 2.80 lakh and the floor-rise charge to Rs 45 per sq ft. For a property on the seventh floor, for instance, it will work out to Rs 315 per sq ft (45x7=315). Thus, the total base price will be Rs 14,415 per sq ft.
This is how it stacks up:
Saleable value: Rs 74,87,500 [Rs 72,07,500 (500 x 14,415) + Rs 2,80,000 (parking charge)]
Registration charge: Rs 74,875 (1 percent of Rs 74,87,500)
Stamp duty: Rs 3,74,375 (5 percent of Rs 74,87,500)
Total cost of the property: Rs 79,36,750
If the stamp duty is charged at 2 percent, a buyer saves Rs 1,49,750. A 3 percent reduction saves nearly Rs 2,24,625.While these amounts do matter in affordable and mid-segment properties, it is not enough. Tax sops and builder discounts will seal the deal.