Surcharge and RR hike in Mumbai will burden buyers and sellers

[ecis2016.org] The Brihanmumbai Municipal Corporation has proposed a surcharge of one per cent on the sale and purchase of properties, as well as an increase in the ready reckoner rates by 3.95 per cent. We examine the impact that this is likely to have on home buyers’ budgets

Recently the Brihanmumbai Municipal Corporation (BMC) in its budget, had proposed a surcharge of one percent on the sale and purchase of properties, to fund its infrastructure projects. In yet another move, the Maharashtra government also proposed to increase the ready reckoner (RR) rates. These moves could come as a nightmare for home buyers and sellers.

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“This surcharge on home buyers, at a time when the state government is also hiking the ready reckoner rates by 3.95%, thereby, increasing stamp duty, has been met with some resistance from the industry. In a tepid sales environment, these additional charges could hinder buyer sentiment that has, over the course of February and March 2017, gradually improved across different ticket sizes,” says Shubika Bilkha, business head at the Real Estate Management Institute (REMI).

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In a city like Mumbai, with high property prices, buyers are already spending about 40-45 per cent of their monthly family income on the expenses for buying a house, such as EMIs. With a hike in rates, developers will be left with unsold inventory, due to negative consumer sentiments, say experts. Consequently, the surcharge may force developers to offer discounts, so that they are able to offload their inventory.

[ecis2016.org] Homes in Mumbai may cost 1% more, as BMC proposes new surcharge

RR rates and trends in Mumbai

Data provided by REMI

In the last five years, changes in the RR rates in cities like Pune and Nagpur, have been lower than in Mumbai. The moderate increases in these cities, have kept the real estate rates in check and helped to maintain a healthy sales momentum. “The ready reckoner rates decide the floor price of a property. Builders do not sell below this price, nor do the buyers pay lesser than these rates. This is because according to the law, anything above or lower can be considered a black money transaction,” explains Amit Wadhwani, director of Sai Estate Consultants.

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Increasing the RR rates, at a time when property prices have already fallen by 25-30 per cent, is not at all good news for the industry, he maintains. “This is the lowest hike in the past few years. However, with the real estate market at a low point at the moment, even this percentage hike will lead to negative sentiment, among buyers and sellers. It will adversely affect consumer sentiment, as well as the government’s affordable housing projects,” warns Wadhwani.

How an increase in the RR rates, impacts the overall cost of the home

The ready reckoner rates are government-issued prices of properties. They are hiked (or reduced), so that the difference between the ongoing market rates and the government prescribed rates, are at its least. A hike in RR rates, increases the taxes that one has to pay on a property purchase and hence, one will have to put in more money while buying a property. However, experts point out that the process of deciding the RR rates, is often unable to capture the variations due to locations, type of constructions and specifications and this leads to arguments and confusion at the time of registration.

Amol Shimpi, associate dean and director, RICS School of Built Environment, Mumbai, explains the impact of RR rate hike, with an example: “Consider a property priced at Rs 50 lakh. A six per cent increase in the RR rates, would increase the value of the property by Rs 3,00,000. With an additional home loan procured to bridge the gap, the EMI is likely to go up by Rs 2,800-3,200 per month. An average middle-class buyer may have to cut down other household expenses, including health care and education and it may also affect his lifestyle.”

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Category: Lifestyle