Maharashtra government's decision to increase the ready reckoner (RR) rates in the city will impact the housing demand as it will raise stamp duty, according to real estate consultancy firm Jone Lang LaSalle (JLL). The state government has recently hiked RR rates for both residential and commercial properties in the city, ranging from 5-30 per cent, with effect from January 1.
RR is used to calculate the market value of a property for stamp duty and registration charges. Therefore, any escalation in them results in higher stamp duty. "The increase in Ready Reckoner rates will definitely have an impact on housing sales as this increases stamp duty. This will hold true for both primary and secondary sales," JLL Managing Director-West Ramesh Nair said in a statement.
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Over the last six months, the housing market in Mumbai had started showing signs of revival after an 18-month sluggishness, beginning in the fourth quarter of 2010. "The hiked ready reckoner rates could dampen that revival, given the fact that home buyers are already burdened with service tax, sales tax, VAT, taxes and duties on construction materials," Nair said.
About 25 per cent of the real estate cost to buyers comprises of various taxes such as excise, VAT, service tax, stamp duty, octroi and local corporation taxes. Reduction of stamp duty and taxes brings down overall costs and increases the affordability of homes. On the contrary, any increase in duty and taxes, which will be ultimately passed on to the buyer, will reduce demand and therefore sales, he explained.
Even land owners will now cite the increased RR values to demand higher prices for their plots, Nair said. "This will negatively affect land sales, as there is already a pronounced lack of liquidity in the sector. Developers will also feel the heat by virtue of having to pay higher capital gains tax," he said.
Nair noted that in such a scenario where the real estate market is plagued with uncertainties, the government should definitely reconsider its stand on this issue. "This (decision) is contrary to the government's aim to encourage and support affordable and mass housing. Reduced duties will encourage more buyers to register home purchase transactions.
"Instances of understatement of sale proceeds would also come down with a reduction in stamp duty. There is sufficient historic evidence to the fact that state revenues rise when stamp duty reduces, as this stimulates housing demand," Nair added.