It’s a new year gift for the ailing realty sector. After its decision to continue with the cut in stamp duty till the end of March, the Maharashtra Cabinet on Wednesday cleared a 50 per cent reduction in all premiums levied on ongoing and new construction projects till December 31, 2021. Project developers, who will avail these concessions, will have to pay full stamp duty on behalf of buyers. The realty sector has hailed the decision, saying that the reduced development costs to developers and lower purchase cost to homebuyers could result in increased demand.
However, to avoid unduly benefiting one particular group or project, the cabinet has decided that premium rates will be based on the Ready Reckoner rates of 2019 and those in place from April 1, 2020, whichever is higher. In Mumbai, realty players have to pay 22 premiums under various heads, including floor space index (FSI), staircases, lift wells and lobbies, which are significantly higher. In Bengaluru, developers have to pay 10 different premiums and charges, and in Delhi five and in Hyderabad just three.
The cabinet approval is a one-time relief provided to builders and developers who have been hit hard because of the coronavirus pandemic and the economic downturn. The decision taken on Wednesday will be applicable to various premiums levied by the government on construction projects and also by all planning authorities / local administrations.
The cabinet gave its approval only after the Congress, which had opposed the reduction in premiums two weeks ago, came on board. The decision was taken based on the recommendations made by the Deepak Parekh Committee, which had made a strong case for reduction, in a bid to provide a much-needed relief to the realty sector and home buyers.
“It is a great bolstering move made by the state government by sealing approval to reduce premiums by 50 per cent under the new DCPR 2034 across the board, for ongoing and new projects up to December 31, 2021. This move will go a long way in expediting the project completion and the industry will witness new launches in the market,” said Niranjan Hiranandani, president, NAREDCO.
ANAROCK CMD Anuj Puri said property prices in the financial capital were much higher than in other large Indian cities. “As per ANAROCK Research, the average property prices in Mumbai are a staggering Rs 17,845 per sq ft. In Bengaluru, it is just Rs 4,955 per sq ft, and in Pune it is approx. Rs 5,487 per sq ft. As a result, the largest potential homebuyer base in Mumbai cannot afford to buy homes here. While there are several factors responsible for Mumbai's sky-high housing prices, the hefty premiums that developers have to pay to the state government are definitely among the prime reasons. The government will also have to ensure that the resulting cost benefit is passed on to homebuyers. However, developers may not need much encouragement to do so, as they are themselves eager to increase sales via improved affordability,’’ he noted.
Knight Frank India CMD Shishir Baijal said the cabinet decision would help the supply side to stabilise and make development in the state more feasible. ‘’The move will help rationalise input costs for developers, as well as help supply momentum, thereby keeping price escalation in control whilst striving towards demand-supply equilibrium in the market,’’ he opined.
Meanwhile, the BJP questioned whether the rebate in premiums would help lower home prices. BJP legislator Ashish Shelar said, “Finally, the ruling partners arrived at a consensus, after initial opposition by the Congress. The cut in premiums will adversely impact revenues of the BrihanMumbai Municipal Corporation. However, will the reduction in premiums lower home prices? We will continue to ask, for the common people.’’