Builders Miffed As Maharashtra Hikes Ready Reckoner Rates

Maharashtra, which houses India’s most expensive property market Mumbai, has increased the minimum price to calculate property taxes within a month after it reduced stamp duty on real estate registrations.

The ready reckoner rates will increase by 1.74% on average across the state—India’s richest—from Sept. 12, according to an official statement.

“The state government has increased rates for the first time in 2.5 years. Looking at the market condition they were kept stable so far,” Omprakash Deshmukh, the state inspector general of stamps and registration, told BloombergQuint over the phone. “This increase is marginal and normal. It won’t put any burden on the decision of buying properties.”

Indian property developers were expecting a reduction in the reckoner rates after home sales have struggled to overcome multiple setbacks such as demonetisation, a stricter housing law, and a credit crunch over the last three years. The pandemic—which has hurt economic growth and incomes—exacerbated the situation. Sales of homes in India’s top eight cities, according to Knight Frank, fell to a decadal low in the first of half of 2020.

The move, according to Anuj Puri, chairman of Anarock Property Consultants, has come as “a surprise, to say the least”. “Bringing down the ready reckoner rate considerably at this juncture was something everybody was looking forward to as it would have given some room to developers to slash prices,” he told BloombergQuint.

“Today in most of the micro-markets, the ready reckoner rate is almost equal to the ongoing sales price and buyers as well as sellers have to pay tax if sales happen below the rate,” he said. “This has been the limitation cited by developers to bring down prices, and an increase of ready reckoner rates further limits the room for them to bring down the price, while too marginal a reduction makes no difference at all.”

Niranjan Hiranandani, president (national) of National Real Estate Development Council, said he was surprised that the ready reckoner rates are being hiked at a time when Union ministers Piyush Goyal and Nitin Gadkari have been urging developers to slash realty prices. “Income tax provisions mean a developer cannot sell at a price point lower than the ready reckoner rate, as it translates into taxation burden for both, buyer and seller.”

New projects will be impacted too, as the value will govern all levies, duties and taxes payable by a developer, he said, adding he hoped the authorities will consider this and take necessary steps.

The move will lead to a cascading effect of increased costs, according to Deepak Goradia, president of Credai-MCHI, an apex body for real estate firms. “This move is bound to have an adverse impact on the number of new project launches and puts the viability of ongoing projects under question.”

Apart from higher approval costs, property sales in primary as well as secondary markets in areas where the rates are higher than market rates will slow due to income tax levied on both buyers and sellers according to section 43CA of the Income Tax Act, Goradia said.

Rates Reduced For Mumbai

Ready reckoner rates for the Brihanmumbai Municipial Corporation limits have been marginally reduced by 0.6%.

The downward revision of the rates for Mumbai is a positive development, said Manju Yagnik, vice-chairperson of Nahar Group and vice president of Naredco Maharashtra. The state has provided another relief after announcing the stamp duty cut last month, he said.

“Overall, the real estate industry was expecting a downward revision in the ready reckoned rates for it to be better aligned with on-ground reality,” Yagnik said. “But the upward revision of RR rates for the rest of Maharashtra (Ex-Mumbai) isn’t something we were expecting”.