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The Brihanmumbai Municipal Corporation (BMC) has proposed a surcharge of one per cent on the buying and selling of properties in Mumbai, to fund infrastructure projects.
This would be enforced by the state government, through an amendment of the Stamp Duty Act. Stamp duty and registration charges collected across the state, contributed Rs 20,000 crore to the state’s coffers in 2016-17. The BMC aims to yield Rs 3,000 crores of additional revenue from this proposed surcharge.
Will the surcharge affect market sentiments?
Buying a property already involves stamp duty, luxury tax and other such charges, which add to the overall cost of the home. With the BMC’s surcharge, the cost will only go up further. Shubika Bilkha, business head at The Real Estate Management Institute, points out that the government’s recent demonetisation drive, forced even the bullish buyers to sit on the fence. However, the budgetary announcements, combined with the election results, saw some positivity return to the market. “Besides this surcharge, the state government has also increased the ready reckoner rates by 3.95 per cent, thereby, increasing stamp duty. This has been met with some resistance from the industry. In a tepid sales environment, these additional charges could hinder buyer sentiments that have gradually improved since February, across different ticket sizes,” she maintains.
“As the 2017 budget did not concentrate on the mid-segment, any increase in property rates, will hamper purchase decisions. This will definitely impact the real estate sector as a whole. Developers are already facing financial challenges in the present scenario and buyers’ sentiments are also not very strong,” adds Manju Yagnik, vice-president of NAREDCO and vice-chairperson of the Nahar Group.
Impact of the surcharge on property prices in Mumbai
Experts point out that a buyer will have to pay Rs one lakh additionally, on a property worth Rs one crore, if the surcharge is implemented. Mona Jalota, director – international and NRI, residential services, Colliers International India, says, “The move will push up the cost of properties, as one will have to pay more for the existing taxes and the surcharge. The affordable housing sector will be impacted the most, with this extra levy.”
The average home prices in Mumbai have touched Rs 11,000 per sq ft. As a result, an apartment of 500 sq ft now costs around Rs 60 lakh. On the other hand, as compared to the previous year, property sales have fallen by 25%-35% in Mumbai.
Luxury segment to be worst hit
The luxury segment has been the worst affected, during the recent slowdown, the prevalent oversupply and the demonetisation exercise. “Luxury properties already command a premium rate. This proposal will significantly increase the overall cost for the home buyers and burden them with unnecessary additional charge, in a segment where the property rates are already very high. Hence, it will push buyers away from their dream home,” opines Sanjay Jain, group managing director, Siddha Group.
Long term outlook
The surcharge may force home buyers to keep a longer time frame in perspective, before buying properties.
Amol Shimpi, associate dean and director, School of Real Estate, RICS School of Built Environment, Mumbai, believes that “The sentiments of buyers will not be affected by an increase or decrease of one per cent as the real estate industry and buyers generally prefer a long-term view of 15 to 20 years, when it comes to levying taxes.
“Nevertheless, considering that buyers and investors do their long-term taxation planning by using capital gains deductions, a sudden increase may send their calculations haywire.”
What buyers and developers want
Rajeev Jain, co-chairman, exhibition committee, CREDAI-MCHI and director, Nirmal Lifestyle, explains that the BMC’s surcharge proposal still requires an approval from the state government. If approved, it will only add to home buyers’ burden of high realty rates and the six per cent of existing stamp duty. Sources from the government are not in the favour of levying this additional burden on consumers and hence, a standard taxation process should be implemented, he insists.