[ecis2016.org] The Maharashtra government’s move to levy a one per cent surcharge on stamp duty for properties in Mumbai, could adversely affect the real estate sector and home buyers, at a time when property transactions are already burdened with high tax rates
Update on March 12, 2019: The government of Maharashtra, on March 1, 2019, announced an amnesty scheme with respect to the penalty that can be levied for insufficient payment of stamp duty made in the past. The scheme proposes to limit the penalty payable on certain transactions to 10% of the deficient stamp duty, instead of the 400% which can be levied in normal course by the government. The scheme applies to all the transactions of sale or transfer of tenancy rights, of residential houses within Maharashtra and is available only for documents that have been executed on or before December 31, 2018. The application, along with the instrument and supporting documents, has to be made within a period of six months from March 1, 2019, i.e., by August 31, 2019, the period up to which the scheme will remain open.
You are reading: Stamp duty in Mumbai hiked to 6%, properties to get costlier
The Maharashtra state legislative assembly has approved an amendment to the Mumbai Municipal Corporation Act, 1888, proposing to levy a one per cent surcharge on stamp duty, on transfers of certain immovable properties. It would be levied on the sale, lease, mortgage and gift of real estate, within the purview of the Brihanmumbai Municipal Corporation (BMC). The existing stamp duty on houses in Mumbai is five per cent, which will now increase to six percent, making properties more expensive.
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Stamp duty rates: How it is calculated
Stamp duty is calculated as a percentage levied on the agreement value or the state’s ready reckoner rates, whichever is higher.
Hence, if the ready reckoner rate for a property is Rs 30 lakhs and the agreement value is Rs 45 lakhs, then, the stamp duty will be calculated on the agreement value of Rs 45 lakhs. Stamp duty and registration charges are one of the highest sources of revenue for the Maharashtra government. In 2017-18, the total number of documents registered with the Department of Registration and Stamps was 21.49 lakhs, which was higher than the figure of 20.46 lakhs in the previous financial year.
The funds collected from the surcharge are proposed to be spent, for expediting the construction of urban infrastructure projects. A senior official from the BMC informed that “This move has been taken, to ensure that some projects like the metro rail, monorail, the coastal road and freeways, have enough funds for smoother functioning and to ease the commute and lessen the road traffic.”
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Surcharge on stamp duty in Mumbai to hit home buyer sentiments
Although the additional stamp duty of one per cent seems to be small, it is bound to impact property prices and consumer sentiments in the long run. Real estate prices in Mumbai are already quite high and an additional tax burden, may dissuade home buyers who have been considering property investments in the present market where they have multiple options and soft interest rates. Anuj Puri, chairman of ANAROCK Property Consultants feels that “This move has come at a time, when the market has just begun to pick up from its slumber. To hike the stamp duty at such a sensitive time, is definitely a sentiment dampener.”
Developers feel that the surcharge will adversely impact sales of homes in Mumbai, especially in the suburbs, even if they try to revive demand with discounts and freebies.
“The total tax burden on the buyer will touch a whopping 19 per cent, considering the 12 per cent Goods and Services Tax (GST), one per cent registration charges and the newly proposed six per cent stamp duty. Already, there is a liquidity crunch in the system and the industry cannot afford a situation where sales could come down. We are hoping that the government will reconsider this decision, by looking for some other sources to fund infrastructure projects,” laments Rahul Shah, CEO of Sumer Group.
Shishir Baijal, chairman and managing director, Knight Frank India, expects the move to impact buyer sentiments in the affordable and mid-segment housing categories. “A one per cent increase will be seen as a significant outflow, thereby, putting many in a wait-and-watch mode. For developers, a forced escalation of total outflow towards home purchase by end-users, can mean more heartburn. This escalation will hamper the purchase decisions of fence-sitters, who were warming up to the idea of buying a home on the back of stable capital values that have remained unchanged in the past four to six quarters,” Baijal explains.
[ecis2016.org] Stamp Duty: What are its Rates & Charges on Property?
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Stamp duty hike, GST on under-construction flats, may push home buyers to ready properties
Industry experts also point out that the hike in stamp duty, may force buyers to opt for ready-to-move-in properties, instead of under-construction ones, in order to save on GST.
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According to Parth Mehta, managing director of Paradigm Realty, “The real estate sector is still not over the impact of GST. Now, this hike will further decelerate the already slow sales of flats, vis-à-vis the service tax regime. Also, this proposal is not justified, as the customers who have already bought their flats taking into consideration their budget and affordability, may land up backing out due to the additional hike in stamp duty, especially in under-construction projects. Realtors are already facing problems in sales velocity of residential units, because of the implementation of GST, followed by the NBFC crisis. It is very difficult for developers to accommodate such dynamic changes, on the back of the overall liquidity crunch. Developers also cannot slow down their construction, as they have deadlines to meet under the Real Estate (Regulation and Development) Act (RERA). At the same time, receivable cycles have elongated, due to unwarranted changes in the BFSI sector.”
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Stamp duty increase in Mumbai may hit PMAY, Housing for All
On one hand, the government is offering multiple sops to boost the affordable housing segment, to achieve its mission of ‘Housing for All by 2022’ and on the other hand, it is adding to the burden by increasing taxes. Many developers, hence, maintain that the government should keep the affordable housing segment outside the purview of this surcharge. Farshid Cooper, managing director of Spenta Corporation, warns that “This decision could delay the prime minister’s vision of ‘Housing for All by 2022’. While infrastructure development is crucial to the growth and prosperity of Mumbai, this move will certainly impact buyers negatively. The 12 per cent GST and six per cent stamp duty, will raise concerns about the affordability of homes in the city.”
Industry experts are also sceptical that if the funds collected are not deployed appropriately, then, the move would be a dampener for the market.
Niranjan Hiranandani, national president of the National Real Estate Development Council (NAREDCO) elaborates that while it is essential to fund the required infrastructure development in the city and the peripheral locations, the surcharge will lead to postponement of home buying and increase the liquidity requirement of developers.
“So, the funds collected through the surcharge should be utilised expeditiously and there should be quick completion of infrastructure projects,” he concludes.
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Source: https://ecis2016.org
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