Let’s begin with the upgrade penalty. Gradually moving from a studio to a 1BHK and then to a 2BHK carries hidden friction. Every purchase and sale cycle attracts stamp duty (5–6%) and registration charges (~1%) in Maharashtra, plus intermediary/brokerage costs (typically 1–2% per transaction side in metros like Mumbai) — meaning each leg can shave off roughly 8–10% of the deal value before even accounting for taxes.
That cumulative drag magnifies if the holding periods are short: selling a property within two years invokes short-term capital gains taxed at slab rates, whereas long-term gains (after 24 months) now face a standardised 12.5% rate without indexation (with some transitional flexibility on older holdings).
The Alternative
Opting directly for the desired 2BHK—possibly in a slightly less mature location—avoids repeated transaction costs and the risk of punitive short-term taxation. Emerging and peripheral pockets in the Mumbai Metropolitan Region (MMR) including parts of Navi Mumbai, Thane and newer growth corridors, have shown solid demand for 1/2BHK formats and improved liquidity, driven by infrastructure momentum and a sizeable share of launches being compact homes.
However, buyers trade off immediate space for future appreciation potential; premium locations still command higher per-square-foot pricing and tend to reprice faster, making size versus location a calibrated decision.
Tax-Timing Friction
The 2024–25 overhaul of capital gains rules simplified long-term gains to 12.5% without indexation on property held over 24 months, but selling earlier can be costly. Upgrading too frequently without adequate holding duration can therefore erode the equity built in earlier purchases.
Bottom Line
For buyers who can comfortably afford a 2BHK in a location with acceptable fundamentals, going straight avoids the “upgrade tax” of repeated stamp duty, brokerage and potential short-term gains—delivering cleaner capital deployment.
Those constrained by immediate budget but anchored to a strong micro-market can consider a staged move only if they plan to hold each rung for the long term (beyond two years) to minimise tax leakage and wait for appreciable equity before trading up. Balancing size, location quality, and timing is the pragmatic path to net wealth accumulation in real estate.
The writer is Partner, Palladian Partners Advisory Limited
