After stamp duty, Maharashtra cuts premiums by 50 per cent

                                                                  Representational picture @Satish Nandgaonkar

                                                        

Satish Nandgaonkar

Mumbai developers on Wednesday welcomed the decision by Maharashtra government to cut construction premiums by 50 per cent approved in the cabinet meeting held today.

Reacting to the cabinet approval for the cut in premiums, Dr. Niranjan Hiranandani, President, National Real Estate Development Council (NAREDCO) said the bold move to cut premiums by 50 per cent for ongoing as well as new projects till December 31, 2021 would bolster the real estate sector.

 Describing the move as “booster dose”, Dr Hiranandani said, “This move will go a long way in expediting the project completion and the industry will witness new launches in the market.”  He said the reduction in premiums for new launches will mean lesser input costs for developers, and could lead to lower prices for new inventory entering the market over a period of time.

 “It is a move expected to meet the urgent need for economic activity and generating employment. The industry will be injected with additional liquidity in the backdrop of cumulative policy reforms due to Covid pandemic, which has been considered as a 'force majeure' situation by the Government of India. This reduction in premiums will help in quick turnaround of projects and uplifting Industry sentiments," he said.

The cabinet note on the decision said that the housing projects which will take the benefit of this scheme will have to bear the full stamp duty charges on behalf of the home buyer from April 1 to December 31, 2021. The note said that Ready Reckoner rates 2019, 2020 - whichever is higher will be applicable. The decision will continue the momentum in real estate sector for another year, and will also benefit the home buyers, it said.

The cut in premiums was among the recommendations made by the Deepak Parekh committee to uplift the real estate sector which witnessed complete evaporation of demand during the stringent Covid-19 lockdowns in April 2020.

Deepak Goradia, President, CREDAI-MCHI, which represents over 1,800 developers across Mumbai Metropolitan Region, said, “We welcome this historic decision by the State Government to reduce the premium charges for the Real Estate Industry and are confident that this move will expedite the economic recovery of Maharashtra with more than 250 allied industries dependent on the real estate sector, which will also generate widespread employment."  

"The Govt has once again walked the talk on making affordable homes a reality for lacs of citizens in Maharashtra. The premium reduction, coupled with the stamp duty charges which will also be borne by the developers, will lead to reduced cost for homebuyers thereby increasing their purchasing power - further underlining the opportune time for them to buy a house in MMR," he said.

Shishir Baijal, Chairman and Managing Director, Knight Frank India said the premium cut will provide a great boost to teh supply side. "New supply has been restrictive due to many reasons including cost of raw material (land being raw material to real estate development) in the last many years, especially in large volume markets like Mumbai and Pune. This move will help rationalise input costs for the developers as well as help supply momentum, thereby keeping price escalation in control whilst striving towards the demand – supply equilibrium in the market. However, since both the demand side as well as supply side measures are short term, it may prove beneficial to jump start the real estate sector giving it an orbital velocity for next level growth," he said. 

"This will also make the sector attractive for investments from institutions. The reduction in premiums, coupled with the revision in stamp duty (that has helped catapult demand) will make real estate development in the state lucrative. Going forward, following the growth trend of demand, we expect new launches to increase accordingly. 

As per Knight Frank’s report released today, MMR recorded sales of 22,407 residential units while new launches in the same period were recorded at 18,515 both registering a Year on Year growth. Residential Sales grew 80% in Q4 2020 over same period last year," he said.

Anuj Puri, Chairman – ANAROCK Property Consultants said Mumbai has as many as 22 premiums compared to 10 premiums collected in Bengaluru or five in Delhi and just three in Hyderabad. "Hefty premiums in Mumbai ultimately result in increased working capital requirements for developers - in a market where lenders are already wary of lending to real estate players. Amidst the ongoing liquidity crunch, these premiums put an additional financial strain on cash-starved developers, making it unviable for many to proceed with development. The disadvantage to homebuyers is that high premium charges lead to increased cost of a residential project, which is ultimately passed on to them. Rationalizing these premiums will definitely give a boost to Mumbai's real estate industry. Reduced development costs to developers and therefore lower purchase cost to homebuyers can result in increased demand," he said.

Puri said these premiums, levies and cesses are paid to the city's municipal corporation and reduced premiums would mean that the state government rakes in less revenue. "This would to some extent be compensated for by the increased number of project developments in the city. The state government will also generate more stamp duty and registration revenue from increased housing sales," he said.

He pointed out that average property prices in Mumbai are a staggering Rs 17,845 per sq ft compared to Rs 4955 per sq ft in Bengaluru or Rs 5,487 pert sq ft in Pune, and hefty premiums is one of the prime reasons among many other factors. "Also, reduced premiums can help developers avoid project delays due to funding issues. A significant reduction in these premiums will give a massive boost to developers’ execution capacity, and this will result in more projects being developed and completed. Redevelopment, which is a critical factor in the city but attracts multiple steep premiums, also becomes more financially viable for developers. The added supply all around will help rein in property prices," Puri said.

Reactions from industry leaders

Siva Krishnan, Managing Director and India Head, Residential Services, JLL India. 

 "This move will help to reduce the landed cost for the Developers thereby rationalizing the cost and reducing the burden on customers. It is expected to further trigger the recovery of the residential real estate market which has seen a good uptick in last 2 quarters due to factors like lower interest rates, pro-active measures from the govt like stamp duty reduction. These moves, coupled with the current measures will go long way in enticing both end users and investors back to the residential market. The country's residential sector is already seeing an acceleration in sales leading to a fast paced recovery from the impact of the pandemic."

Manju Yagnik, VCP, Nahar Group and Senior Vice President, NAREDCO West

“This step will be a direct incentive for homebuyers waiting for the right time to invest in real estate.   The move is a win-win for developers and end-users. It will lead to a reduction in the project cost for developers. We saw the effect of reduction in stamp duty, it led to stellar sales from the month of September-December, with the sales data for last month hitting a multi-year high. The reduction in premium will lead to a revival of stuck projects, new launches, higher sales. It will more than offset the loss incurred to the state government in terms of higher sales like it did in the case of a reduction in stamp duty.”

"The premium for construction of projects is the highest for Mumbai city, and it accounts for over 25% of the project cost in some cases. “The real estate industry is key to the overall growth of the economy, it needs government hand-holding to boost demand and revive growth."

Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory 

“After the temporary reduction in stamp duty charges, the 50% reduction in premium payments until December 2021 will benefit the supply side immensely. It will also help developers pass on further benefits to homebuyers, invigorating demand for real estate projects that are under construction,” he said.

“This move is likely to propel developers to offer extended payment holidays and also give lucrative price proposals to buyers in projects  where the inventory has been selling slowly. While the pandemic and subsequent lockdowns made developers focus on completing existing projects and largely postpone launching new ones, this move of halving the different kinds of premiums and levies is going to make developers contemplate going back to launching new projects.” 

Mani Rangarajan, Group Chief Operating Officer, Housing.com, Makaan.com and Proptiger.com

“The reduction in premiums would help the Mumbai market as the city collected as many as 22 premiums under various heads, which is higher than other top cities. High premium puts a financial burden on developers leading to higher costs for the homebuyers. In the current economic scenario, the step would ease the burden and soften the prices resulting in more sales in the coming months.” 

Rohit Gera, Managing Director, Gera Developments 

"The move to reduce the premiums is extremely welcome. It will provide respite to the cost burdens for developers thereby spurring on more supply at lower prices.  It is, however, important to realize that the charges paid for approvals include development charges and other charges under other heads.  Effectively, this means the total benefits will be much less than 50%"

Ram Raheja - Director, S Raheja Realty

 “This move will certainly boost the existing demand in real estate. Especially in cities like Mumbai, the cost of land is high and therefore a cut in construction cost will be a huge relief for developers who have been dealing with low margins. Also, there will certainly be a passing on of the benefit in terms of the price which will lead to increased interest from fence-sitters. This will especially impact luxury housing where the ticket-size is higher. 2021 will certainly be the year for real estate.”

 

Kris Raveshia, CEO, Azlo Realty

“Maharashtra state government has set an example once again by reducing the premium and levy charged on construction for a year, this is a step in the right direction. The move will benefit all stakeholders, developers in terms of the reduced construction cost for projects; for customers, it will help reduce prices and boost demand; for the government, it will help increase premium and levy collection as the move is likely to revive stuck projects.

 

This development will act as a stimulus for the real estate sector. Any reduction in cost, prices is a direct incentive for homebuyers/investors to invest in real estate. A fact proved right when the state government reduced stamp duty last year, it helped register record sales for the month of September-December. We are confident, like stamp duty reduction resulted in higher collection, this move too is likely to help the state government with higher revenue collection.

 

 The real estate sector has been long demanding a reduction in premium and other levies from the state government. The number of premium and amount is the highest for financial capital – Mumbai, it amounts to almost 25-35% of project cost for the developers. The state government has been the first to provide relief to the industry and other states tend to follow it. We are confident the reduction in premium will also help attain its desired results in boosting industry and consumer sentiment, making real estate affordable for more and more people.”

Sanjeev Chandiramani, Chief Operating Officer, Ruparel Realty

 "The Maharashtra Government’s decision to cut the real estate premiums by 50%, has set a momentum for the positive start to the year.  As per the new DCPR rule, the cut will be applicable till 31st December’21 and along with the recent stamp duty reduction will provide a dual push for sales of residential apartments. Additionally, it will provide the much needed economic relief to the developers and the funds can be utilized for faster completion of projects. This will also lower purchase cost for the buyer and will result in higher demand and improved industry sentiment.  We believe that the premium along with the recent stamp duty reduction will further incentivize the homebuyers and make it opportune for them to buy a house in MMR region. We are delighted to have strong support from the state government and are hopeful to see a surge in Mumbai’s real estate market this year."

 Abhishek Jain, Chief Operating Officer, Satellite Developers Private Limited (SDPL)

''After being hit by the pandemic, the real estate sector has seen a solid recovery on the back of stamp duty reduction and a good festive season. Now this move of reduction in premiums by 50% will help rationalize input costs for the developers and will go a long way in expediting project completion thereby keeping price escalation in control. The industry will also witness new launches in the market attracting investments from institutions. All in all a good move that will sustain the growth of the real estate industry in the coming months.''  

Dr. Adv Harshul Savla, Principal Partner, Suvidha Lifespaces (M Realty)

 "Increased FSI and reduced premiums will increase new launches and lead to reduction in prices of new under construction inventory. However, the double impact of these two factors may also lead to a dramatic crash in the value of units in the old resale buildings as home buyers may prefer units in brand new buildings than resale buildings. It may also bring the consumer spotlight back on under construction inventory from ready to move in or near completion buildings, making them scarce." 

Farshid Cooper, Managing Director, Spenta Corporation

"This is a very encouraging announcement at the start of year by the Maharashtra Government. The lockdown had worsened the situation and the liquidity crisis in the real estate industry. The department’s proposal to provide discounted premiums of 50% on all new and on-going projects will go a long way to ease the liquidity constraints faced by the sector. This will boost new launches in the market and lead to a reduction in the project cost for developers. The stamp duty reduction helped the sector regain from the pandemic with property registrations rising in the state and now with lesser premiums it will provide great impetus to the business. Homebuyers should definitely consider this as a golden opportunity to buy their homes."

 

Nitin Gupta, Sr. Vice President,  Sales,Marketing and CRM, Mantra Properties

"With reduced stamp duty charges and now this rationale move by the government brings in great relief to the developers wherein ever increasing costs of construction can be offset to an extent.  The environment today with low interest rates, reduced stamp duty was pushing the demand for homes and with the reduction in premium charges, we've got a catalyst introduced to help the sector grow."