News Analysis

Stamp duty cut brings a wan smile to Maharashtra’s real estate market

Bavadharini KS BL Research Bureau | Updated on March 10, 2020 Published on March 10, 2020

As it reduces price for home-buyers, sellers hope to sell more, clear inventories

In a bid to boost the real estate market, the Maharashtra government, which presented its budget on Friday, announced a 1 per cent reduction in stamp duty and other related charges applicable on registration of documents in certain parts of the State.

The State government announced its intention to bring down stamp duty charges to 5 per cent from 6 per cent for regions including MMR (Mumbai Metro Region), Nagpur and Pune. The move will provide marginal relief to home-buyers and could encourage purchases. Presently, about 2.16 lakh units remain unsold in MMR, according to a report by real estate consultant Anarock.

While there is no direct impact for developers, a lower stamp duty could help boost demand in the market and bring down the unsold inventories. But the relief offered is available only for the next two years — FY21 and FY22.

If you are a home-buyer, here is why the change in stamp duty matters.

What is stamp duty?

Once you have zeroed in on a house property, the next step would be get it registered and take possession legally. This is where, over and above the cost of the property, you pay registration and stamp duty charges to the State government. For instance, in Maharashtra, at the time of purchase/sale of house property, a home buyer has to pay registration charges and 5 per cent stamp duty on the consideration value of the property.

According to Ritesh Mehta, Senior Direct and Head - West India, Residential Services, JLL India, “stamp duty is charged as a percentage on ready reckoner value (circle rate), which is the rate fixed by the government, or on the market value, whichever is higher”.

This fee is levied to validate your (home buyer) registration agreement by the government. The same acts as a legal document to prove your ownership of the property in court, in case of any dispute. The stamp duty charges vary with each State, ranging from 5 to 7 per cent.

In general, the cost of a house property in the market excludes the value of stamp duty. It is mandatory and is usually paid by the buyers as he/she is taking the title/ownership of the property.

Impact of stamp duty cut

As stamp duty charges add to the total cost of the property, any increase or decrease in it influences demand to some extent.

Thus, the Maharashtra government’s announcement is aimed at boosting real estate demand. With property prices stagnant and multiple projects unsold and under construction across MMR (31 per cent of the overall under-construction properties in MMR), housing units could become attractive to an extent due to the lower levy. The reduction in stamp duty could particularly improve demand in the affordable and mid-income housing segments, where greenshoots are already visible.

“In addition to the affordable housing segment, the luxury and premium housing segment, too, is likely to be benefited as savings in terms of stamp duty would be substantial. For a property in the premium segment, costing say ₹50 crore, the home-buyer can save ₹50 lakh in stamp duty,” said Mehta.

Further, with prices correcting in some regions in Mumbai, it bodes well for the realty market. Mumbai-based realty companies including Sunteck Realty and Godrej Properties may benefit, too, as they have a presence across housing segments including mid-income and luxury.

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Published on March 10, 2020
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