With the threat from the Omicron Covid variant looming large, several State governments, including Maharashtra, Delhi and Karnataka, have either extended or announced new property tax interventions in the New Year to help sustain residential sales in 2022. These initiatives, say real estate experts, are expected to help sustain the positive homebuyer sentiment and sales momentum.
On January 1, the Maharashtra government decided to completely waive property tax on residential units of up to 500 sq ft located within the Mumbai municipal area limits. State Urban Development Minister Eknath Shinde had said that the decision would benefit owners of over 16 lakh houses below 500 sq feet within the Brihanmumbai Municipal Corporation (BMC) limits.
On New Year’s day, the Karnataka government also slashed the property guidance value across the State by 10 per cent for the next three months in a move aimed at providing an opportunity for people to get registrations done at the earliest.
The offer is for those who are 'pushing time' with the General Power of Attorney (GPA) and agreements on properties. Also, it is for those who are planning property registrations. This is effective from January 1 until March 31. The guidance value is the minimum selling price of a property fixed by the government, depending on the locality and type of structure.
Timely intervention
“Stamp duty cuts proved to be timely interventions that boosted property sales during the previous Covid-19 waves, which were more devastating than the current one. The positive homebuyer sentiment and sales momentum continues even now, and property tax and circle rate interventions will certainly help keep it going,” said Anuj Puri, Chairman, Anarock Group.
Apart from these, the sector has its hopes pinned on the upcoming Union Budget for further sentiment boosters, said Puri. These include, for instance, deductions on home loan principal repayment apart from the existing 80C, and a more inclusive definition of affordable housing criteria so that more aspiring homebuyers can benefit, he said.
The waiver of property tax has a rider. Only the general tax component, which is one of the seven tax items in the tax bill, will be exempted. “This would translate to about 15-20 percent reduction of the overall property tax liability, which also includes items like water charges, sewerage charges etc. It will mainly benefit small home owners since this waiver is applicable up to 500 sq ft of builtup area, said Subhankar Mitra, managing director, advisory services (India) at real estate services firm Colliers.
“Several housing societies going in for redevelopment will also receive an impetus. However, this may not necessarily lead to any significant shift in demand towards 1BHKs or smaller houses,” opines Mitra.
According to Sopan Gupta, co-founder and principal partner, Square Yards, the slash in guidance value by 10 percent in various parts of Bengaluru is a commendable move and will lead to a spurt in property registrations as it will provide homebuyers with a golden opportunity to register their homes at a discount. Property registration expenses add up to a good part of the actual cost of home ownership, and this revision in guidance value will act as a breather for homebuyers looking for affordable homes.
Delhi extends rebate again
On December 30, 2021, the Delhi government also extended the 20 percent rebate on the circle rate for land and immovable property till June 30, 2022, according to an order issued by the Revenue Department. The extension of reduction in the circle rate will come into force with immediate effect, the order stated. The rebate scheme was launched in February 2021 amid the Covid-19 pandemic and was to end on September 30. In September, it was extended up to December 31.
Properties in Delhi are divided into eight categories from 'A' to 'H'. While posh areas fall under the 'A' category, the least developed areas come under the 'H' category. Under the government's rebate scheme, the existing circle rate of land in 'A' category areas will go down from Rs 7.74 lakh per square metre to Rs 6.19 lakh per square metre, the officials said. In 'H' category areas, the circle rate will be reduced from Rs 23,280 to Rs 18,624 per square metre after the 20 per cent rebate.
“The decision to extend the reduction in circle rate is a welcome move and very much required. This six-month extension will definitely boost the transaction momentum in the category A markets of Delhi like Vasant Vihar, Panchsheel Park, New Friends Colony, Maharani Bagh," said Amit Goyal, CEO, India Sotheby's International Realty.
"However, the Delhi Government should also expedite the process of rationalising circle rates across Delhi's colonies and shuffling them in different categories to better align them with existing market rates,” he added.
Reduction in ownership expenses
Commenting on the Maharashtra government’s property tax waiver on residential properties measuring 500 sq ft in Mumbai, Shishir Baijal, Chairman and Managing Director of Knight Frank India, said that the waiver of property tax for the affordable segment would be a great boost to sentiments for end users in the category as the waiver would reduce ongoing expenses towards owning a house and help add to their annual household savings.
This decision, which was deliberated for quite some time, will provide big relief. For the BMC, the property tax waiver will have an impact on revenues.
However, this will be compensated by the real estate market bounceback, with sales of mid to higher end segment apartments increasing consistently in the last five quarters.
Highest transaction volume in a decade
Shishir Baijal told Moneycontrol that the uptick began in the third quarter of 2020 with the reduction of stamp duty by the Maharashtra government in August 2020 after the first wave of Covid-19. “The momentum of that initiative continues till date,” he said, adding that the absolute value of the stamp duty cut with increased sales was far higher than in other States. There is no doubt that these stimulant measures have a great impact on sales.”
The discounted stamp duty regime in 2020-21 brought buyers back into the market and in 2021 the transaction volume of 1,12,000 apartments in the BMC area was at a decadal best, and 40 percent higher than pre-Covid numbers, leading to a rise in revenues for the city. “We expect the bullish trend in property purchases to continue in the new year,” Baijal added.
Niranjan Hiranandani, Vice Chairman of NAREDCO and MD, Hiranandani Group, concurs. “This will enhance acceptance of compact homes in Mumbai. The move by the authorities will be positive for affordable housing. This will also prove to be advantageous for redevelopment and Slum Rehabilitation Authority projects offering homes that are 500 sq ft or less in size. One hopes that similar or partial waivers for slightly bigger homes, of around 750 sq ft, will also get announced. These will have a positive impact on affordable housing.”
According to a Knight Frank India report released on January 5, 2022, housing sales increased to 2,32,903 units last year, from 1,54,534 units in 2020, but demand was down 5 per cent from the 2019 pre-pandemic levels and 37 per cent lower than the 2011 peak numbers.
According to the annual data, housing sales in Mumbai rose 29 per cent to 62,989 units in 2021, from 48,688 units in the previous year. In Delhi-NCR, housing sales increased 65 percent to 35,073 units from 21,234 units. Housing sales in Bengaluru rose 61 per cent to 38,030 units, from 23,579 units. In Hyderabad housing sales jumped over two times to 24,318 units and in Chennai housing sales went up 38 per cent to 11,958 units.
Baijal said at the launch of the Knight Frank India report that the housing sales momentum should continue in 2022 unless there is some serious impact from Covid in the coming weeks and months.
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