The Maharashtra government has made ready reckoner for real estate prices, its biggest cash cow, and increased its rates every year without any justification

The Maharashtra government is reportedly mulling a 10% to 25% increase in the ready-reckoner (RR) rates for residential and commercial properties across the state from next month. However, according to experts, such a hike is unrealistic.

"This kind of proposed hike in ready reckoner rates is unrealistic. At present, property prices are down by about 30% and there are no buyers. In addition there is abundant supply and the trend is of a further fall in property prices. In this scenario, proposed hike in ready reckoner rates is unwarranted," said Advocate Vinod Sampat.

According to a report from Business Standard, the (state) government intends to mobilise Rs20,000 crore during 2013-14 through stamp duty and registration fees. "From 1 January 2013, the state government had hiked RR rates in Mumbai by 5%-30%. Property buyers would have to shell out more as based on the revised RR rates, they would also have to pay higher value added tax, service tax and 50% increased stamp duty," the report says.

Ready reckoner rates are used to calculate market value of flats for stamp duty and registration charges. Since 2008, these rates are being calculated on built-up area of the flat.

During 2008-09, the income from stamp duty was Rs8,384 crore even as the state government refrained from revising ready reckoner rates due to the slowdown. However, over the next years, ready reckoner rates have been revises regularly, thus boosting revenues for the Maharashtra government. During 2009-10 its collected Rs10,901 crore (up 30%) as stamp duty, Rs13,411 crore in 2010-11 (up 23%) and Rs14,800 crore in 2011-12 (10% hike). The collection rose to Rs15,000 crore by end 2012-13, the news report says.

Sunil Mantri, president, National Real Estate Development Council, told Business Standard: “In the last few years, the government has made RR the biggest cash cow, with a rise in its rates every year without any justification. Any increase in RR rates is totally unjustified, especially when the realty sector is passing through a tough time. In fact, my suggestion is that the government should reduce the RR rates and also cut the stamp duty to 2%-3% from the present level of 5%. This will ultimately boost property transactions.”

The proposed increase in ready reckoner rates may not substantially affect transactions of new flats as the builders often sell it about 30%-80% higher than the RR rates. However, for the old flats, especially those in the redevelopment phases, the rates may go up due to proposed increase in construction cost in ready reckoner rates.

Adv Sampat said stamp duty collection is the second highest source of revenues for Maharashtra government. "Despite, the increase in property tax, prices would fall further as there is abundant supply and no buyers," he added.

However, Mumbai’s residential real estate market has always shown higher resistance for price moderation, largely because of the scarcity of land, says Anuj Puri, chairman and country head, Jones Lang LaSalle India in a report. “Currently, given the exceedingly high pricing and slow sales, we expect a marginal price correction in Mumbai’s residential property sector. However, the window of opportunity could be smaller than the previous one, since fence-sitting investors are jumping in quickly even with a modest price correction. With insufficient and belated infrastructure, Mumbai’s prime areas will continue to command premium valuations,” he added.