Real Estate Budget 2012, A Mixed Budget for Mumbai Real Estat

While low cost housing gained incentives in the Union budget, the hike in service tax sent a wave of disappointment in the sector. In a move that could have caused a further setback to the industry, the government had reportedly decided to increase stamp duty on leave and license agreements by 160 times. Owing to sharp industry reactions, fortunately the hike did not happen, offering some relief to the buyer. However, in the recently announced Maharashtra State Budget, finance minister Ajit Pawar has announced a flat 5% stamp duty on conveyance deeds in a bid to rationalise the stamp duty structure. The rebate offered in stamp duty has been removed, which has made the home buying proposition dearer by Rs 17,400 in Mumbai.
Under the earlier structure, a homebuyer would have to pay Rs 7,600 for the first five lakhs and then 5% for the remaining amount. But under the new structure, the buyer has to pay a flat rate of 5% so for a house costing Rs 40 lakh, the buyer now has to shell out Rs, 2,00,000 as stamp duty as against the earlier Rs 1,82,600.
Paras Gundecha, President, MCHI-CREDAI and Chairman and MD, Gundecha Builders says, “We were expecting the government to slash the stamp duty by at least 1% but as per the new proposal, the stamp duty has been decided at a flat rate of 5% in the city. The benefit for the first Rs 5 lakh slab has been removed so the city buyers will feel a minor pinch but for rural areas, the stamp duty has been kept at 3% for gram panchayats and 4% for municipal councils, which will prove helpful to the rural home buyer.”
According to Advocate Vinod Sampat, President, Registration Fee and Stamp Duty Payers Association, the move will affect the common man who is already grappling to find a home in the city. He says, “If the government wanted to rationalise the stamp duty, why didn’t it reduce the stamp duty rate instead of keeping a blanket rate of 5%? The Government has not provided any new facilities to the common man in the Budget this year and instead increased prices on all fronts. Why don’t they focus on making the system more accountable instead? These days, it has become very difficult to even register a document without a tout. There is harassment on one pretext or the other. The government should try to increase services and make law simple.”
For Mangesh Sawant, who has been looking to buy a bigger home as his current house is inadequate for the growing family, this is an additional burden to bear. He says, “Suddenly the real estate sector that was growing well is now in a handicapped position. Instead of fresh measures to revive the sector, such steps are going to prove very discouraging for the home buyer and the overall health of the sector. Even with a salary of Rs 50,000 per month, a common man cannot afford a decent accommodation in a budget of
Rs 45 lakhs in a good location. On one side, the companies are in a cost cutting overdrive and on the other side the government is on a tax spree. The poor common man is caught in a trap and has nowhere to go. The government needs to think of better strategies to address their revenue issues instead of burdening the common man.”
Thankfully, the proposal to hike stamp duty by 160 times on leave and license agreements has been kept on hold, giving some relief to the sector as well as the home seeker. Owing to the strong objection, the proposal is now under revision and government study. Currently, the stamp duty for residential and commercial leave and license agreements is capped at maximum Rs 25,000 and Rs 50,000 respectively. The cash-strapped Maharashtra government had proposed to hike stamp duty on leave-license to 0.1% on market value or 1% of the average annual rent or deposit paid, whichever is higher, for residential properties. For commercial properties, the duty proposed is 0.4% for lease agreements over 60 months.
Sampat says, “That would have been a political suicide. One can understand a marginal increase in rates but a hike by 160 times in stamp duty is far too phenomenal and will have a strong impact. The operations will suffer and will have to be severely consolidated. On the residential front, people will be further pushed into interior areas. Someone who was looking at taking up a property in Vashi will have to move to Kharghar or Kamothe. On the investment side, people will think twice before investing in property. And because it is a big change, it would also lead to a row of fights and litigations.”
Such hikes will put a serious question on the affordability of the sector, believes Gundecha. “The commercial business is already down and with announcements like these, there is a high possibility that offices will shift to other states. A marginal increase can be expected but government cannot increase the rates so much. All the possible charges associated with the building industry have been increased but the question is how much is how much? And if everyone wants to collect money from this sector, how does it remain affordable? Why does the government not look at other industries instead?”
Sunil Datwani, President, Lok Housing says, “The builder community was lobbying for a flat stamp duty rate of 3% but unfortunately that did not happen. Leave and license agreements had picked up very well in the market. The hike would have acted as a stumbling block.”
It has become imperative for the government to provide a competitive environment for the industry as well as the common man who is running the show. Chintan Vora, Director, Vijay Group says, “The EMIs for buying a flat in a city like Mumbai are already very high. For those newly moving into the city, in the initial phases they all prefer taking a rental accommodation because that is considered an affordable option. How do you justify an overnight hike of 160 times in the leave and license agreements? The commercial sector will find it reasonable to relocate to other states who offer a competitive environment.”
Vora says that Mumbai being the financial hub, government officials must provide incentives to the industry here. “The government should focus on reducing their expenditure. You can’t just go on taxing people on everything. There is no problem with the increase which is bound to happen in a growing economy but it has to be gradual and well thought out,” he concludes.

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