Maharashtra Stamp duty hike: “Neither can you afford to own a home, nor take it on rent”

As if the spiralling prices were not enough due to cost increase of 5%-15% in cement, steel and labour, the state government is proposing to increase stamp duty on rentals to 160 times.

While people often accuse builders and developers for hiking property rates, they are not the only ones to be blamed. Even the Maharashtra government is again raising stamp duty for leave-and-licence agreements. According to reports, the state government has proposed to hike stamp duty on leave-licence 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 for lease agreements over 60 months is 0.4 per cent.

This is a big jump from the fixed amount of Rs 25,000 for residential and Rs 50,000 for commercial properties for 60 months, as is the rule now. In short, there is no relief for consumers. They can neither can afford to own a home, nor they can afford to rent one in the state. And according to some experts, the property rates in Mumbai will not come down and so there will not be any increase in sales as well.

In a report Crisil Research, said, “Notwithstanding a 40% dip in sales of new homes since mid-2011, a sharp rise in construction and funding costs, in addition to amendments to the Development Control Regulations (DCR), will increase costs for builders and prevent a reduction in home prices.”

Pankaj Kapoor, MD, Liases Foras, said, “I believe the market is going to be in hibernation for the next two to three years: neither will there be any increase in sales, nor will the prices come down. Also, new approvals are unlikely to come. Many builders' plans have gone for a toss because of the new DCR.” He said that a correction of 30% in prices is necessary, but it is not likely to happen.

With regard to the 40% slump in sales of new homes between April 2011 and February 2012, Sudhir Nair, head, CRISIL Research, explained, “Through 2011, even as the number of enquiries from buyers remained strong -- implying healthy latent demand—only a few enquiries translated into actual sales. Higher interest rates, slower economic growth, inflationary pressure and expectation of price correction led most buyers to defer buying decisions. In 2012, the latent demand is likely to spur a moderate 10% increase in new home sales.”

While new home prices will remain steady across Mumbai, the southern and central parts of the city will stand out as exceptions, says the report. Prices are likely to decline by 6%-7% in South Mumbai (Napean Sea Road, Tardeo, Opera House, Peddar Road) and 8%-10% in Central Mumbai (Worli, Prabhadevi, Lower Parel).

“Although prices fell by 20% and 10% in Central and South Mumbai in 2011, new homes in these areas will still remain unaffordable for most buyers,” added Mr Nair.

Crisil says that in 2012, cement prices in Mumbai will rise by 5%, steel by 7%-9% and labour costs will go up by 10%-15%. Funding costs, too, will remain high. On top of that, the new DCR will increase cost for builders by about 15%. All this does not leave any room for price correction.

However, Pranay Vakil, chairman, Knight Frank India said, “I believe that attitudes may soften because there is a lot of pressure on developers whose interest on loans are due. There are many reasons why the prices are not coming down. If a builder is selling flats at a certain rate and then offers later projects at a lower price, people who have bought their flats earlier will refuse to pay a higher price. But the pressure is mounting, and the rates for repayment are high. We cannot say for sure when the softening will start. But decline may be expected.”

What seems to be more distressing is the proposed hike in stamp duty in Maharashtra for leave-license; which would result in a hike in rental prices.

Subhankar Mitra, head-strategic consulting (west) Jones Lang LaSalle India, said, “Residential apartments are usually given on renewable leases of 11 months, with the nature of agreement being leave and license. The current stamp duty on these agreements was nominal at 0.1% of the lease amount. As things stand now, a person paying a rent of Rs10,000 per month will have to cough up stamp duty to the tune of Rs1,200 as opposed to Rs120.”

Mr Mitra said that on an immediate basis, there may not be any significant change in demand. However, more and more tenants in cities like Mumbai and Pune will begin showing a preference for owned rather than leased properties, as this would make more financial sense.

“There is no relief for the consumer, because the hike in stamp duty was uncalled for; and is strictly revenue-centric. It is not right to blame only the builders for price rise. Earlier, government had reduced stamp duty rates, and that led to increase in sales volumes, but now again they are raising the rates. Neither can the people afford owning homes, nor can they afford to rent,” added Mr Kapoor.




4 years ago

I recently wanted to register my Leave & Lic agreement using the Maharashtra Givt portal. However even after online Regn, when I reached the Registrar office along with other party, we were in for a shock. You can't avoid the broker as you need 2 witness to identify you. I wonder when PAN card or other identity proof are compulsary & to be shown in original, why this ancient reqt of 2 witness still stands. This is how touts make money. It is high time that Mah Gvt relook at such rules & do away with Witness when doing registration etc. Then only e-Gov will flourish.


5 years ago

If i want to purchase a new flat for Rs.40 lacs in aurangabad,maharashtra, then how much stamp duty that i have to pay?


5 years ago

The constant rise in the flat prices have forced middle class salaried people like me to defer buying flats in Mumbai and suburbs and Maharastra Govt is not bringing any policy to curb this never ending price hike. Instead they are leving more burden on us.I hope someday the prices will come down to a affordable price.

Market to fall if RBI does not cut rates, says BNP Paribas

Since economic growth is slow, there is a justification for a rate cut, hopes the market players

The Reserve Bank of India (RBI) annual monetary policy statement will be announced on 17 April 2012, and all eyes are on an expected rate cut, according to the Fixed Income Weekly Update from BNP Paribas Wealth Management. The CRR (cash reserve ratio) has been cut twice, bringing it down from 6% to 4.75%. According to BNP Paribas, in case there is no rate action on 17 April, market reaction would be adverse. The RBI may come up with a guidance in the statement on rate cuts going forward, but that would not help market sentiments as the direction is not the question now, the question is about the extent of rate cuts.

The other important forthcoming event is the announcement of the GoI (government of India) borrowing calendar for the first half of the coming fiscal. On the borrowing schedule, if the gross quantum in the first half is say 60% of the annual target, it would be approx 60% of Rs5,69,000 crore, which works out to more than Rs3,41,000 crore. This would exert upward pressure on G-Sec (government securities) yield levels, says the BNP Paribas.

The 10-year benchmark Gilt yield, after the up-tick on 16 March 2012 (Budget announcements), has been moving in a band. It is at 8.4% according to data from Bloomberg. Liquidity remained tight last week, being the week after advance tax outflows. Also, money market yields eased gradually over the week.

Further, the economy shows that there are concerns on inflation although inflation will be lower in March and April due to a favourable base effect. Fiscal consolidation has been attempted in the Union Budget, but still the target deficit for the year is 5.1% of GDP (gross domestic product) and there could be slippages from target, thus stoking inflation, feels BNP. Growth would be lower than optimal for a growing economy, and that remains the only factor for rate cuts, says BNP Paribas.

Data from Bloomberg shows that the monthly inflation figure for February 2012 was 6.95% against 6.55% in January 2012. The Index of Industrial Production (IIP) was 6.8% for January 2012 against 2.5% in December 2011.


IDBI Bank to get Rs810 crore capital infusion from government

Government of India (GoI), in a letter dated 23 March 2012, had decided to infuse capital funds to the tune of Rs810 crore by way of preferential allotment of equity, IDBI Bank said in filing on the BSE.

State-owned IDBI Bank said the government has decided to infuse Rs810 crore in the bank by way of preferential allotment of shares.

Government of India (GoI), in a letter dated 23 March 2012, had decided to infuse capital funds to the tune of Rs810 crore by way of preferential allotment of equity, IDBI Bank said in filing on the BSE.

Last month, the bank decided to sell 5% stake to Life Insurance Corporation (LIC) on preferential basis.

LIC has in-principle given approval for subscribing a maximum of up to 5% of the pre-issue paid up equity capital of the bank, it had said.

IDBI Bank’s shares closed at Rs105.50 per share on the Bombay Stock Exchange, 2.18% down from the previous close.


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