Additional Stamp Duty Will Hit Home Sales In Mumbai, Say Developers
Developers say the Maharashtra government’s move to levy an additional stamp duty on property transactions to fund infrastructure will hurt home sales in Mumbai even as they try to revive demand with discounts and freebies.
The state proposes to levy a 1 percent surcharge on stamp duty. The existing stamp duty on houses in Mumbai is 5 percent. The proposal, if accepted, will increase it to 6 percent, making houses more expensive.
Housing demand is yet to revive from the disruption caused by the note ban and a new housing law. Sales are yet to pick up though new launches surged in Mumbai in the first half of this year, according to Knight Frank India. While property prices have fallen in India’s second-largest real estate market, they remain highest in the country driven by land costs. An average one-bedroom apartment in Mumbai starts at Rs 45 lakh and can go as high as Rs 1.5 crore, according to property portal 99acres.com. That implies an additional cost of Rs 45,000 to Rs 1.5 lakh if the stamp duty is increased.
“Currently, some developers offer zero stamp duty or 50 percent discount to boost sales,” Rahul Shah, chief executive officer at Sumer Group, said. “Either they will have to absorb the higher stamp duty cost or add up to the buyer’s total cost resulting in delayed decisions from potential buyers.”
The state government has proposed to amend the Mumbai Municipal Corporation (Second Amendment) Act, 2018, where it plans to levy an additional stamp duty on transfers of certain immovable properties. They would be levied on sale, lease, mortgage and gift of real estate within the Brihanmumbai Municipal Corporation limits.
“Whatever positive sentiment that was building because of new reforms and policies would create distress for affordable housing after such a move,” said Ashok Mohanani, chairman of Mumbai-based developer Ekta World and vice-president of National Real Estate Development Council. This additional cost will dampen sales, he said.
The state revenue department expects to collect an additional Rs 1,000-1,200 crore. In the previous financial year, the revenue department collected Rs 6,520 crore in stamp duty. In the fiscal ended March 2017, the amount collected was Rs 4,024 crore.
The amount collected will be used to fund infrastructure projects in the city such as the metro rail, monorail and bus rapid transport system, including freeways and sea-link, which amounts to nearly Rs 1 lakh crore, according to the urban development department.
The real estate industry will grow only if infrastructure of the region is improved, an official of the department told BloombergQuint.
The government has limited resources to raise money. Hence, it decided to levy an additional surcharge on stamp duty, he said, adding that across Maharashtra the stamp duty is 6 percent, barring Mumbai where it is 5 percent. So, the government proposed to bring it on a par with the rest of the state, the official said.