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On the recommendation of the Deepak Parekh committee, the Maharashtra government has reduced the premiums charged by authorities for realty development (ongoing and new launches) by 50% till December 31, 2021. This could be instrumental in spurring demand for under-construction properties and launches of new projects in Maharashtra. Several real estate industry reports have pointed out that investing in homes has never been taken more seriously, than during the COVID-19 pandemic. While the industry was reeling under a slowdown for the past few years, the year 2020, which was marred by the pandemic, actually gave a much-needed impetus to the sector, in terms of pure demand, combined with a slew of government initiatives. Record-low interest rates on home loans and stamp duty reduction in some states, resulted in an increase in property registrations. Now, the lower premiums are likely to give a further boost.
How will Maharashtra government’s 50% reduction in premium impact real estate?
While ready-to-move-in properties are in much demand, following the COVID-19 pandemic, industry experts opine that the recent move of the Maharashtra government will increase buyers’ preference for under-construction projects and new launches. Lauding it as an encouraging announcement at the start of the year, Farshid Cooper, MD, Spenta Corporation says, “The lockdown had worsened the situation and the liquidity crisis in the realty industry. This proposal, to provide discounted premiums of 50% on all new and ongoing projects, will go a long way to ease the liquidity constraints faced by the sector. This will boost new launches in the market and lead to a reduction in project costs for developers. Additionally, it will help to avoid project delays due to the liquidity crisis.”
Ashok Mohanani, president, NAREDCO Maharashtra, adds: “The Maharashtra government’s move to slash premiums on construction by 50%, will definitely open the segment for under-construction projects and new launches. The decision will surely stir positive sentiments among fence-sitters.” While the pandemic has heightened the need for owning a home, many people have also lost their jobs or have been forced to take salary cuts. “With a reduction in premiums, especially in ongoing and new launches, project costs will be comparatively lesser, aiding home buyers to take the plunge,” says Jay Arora, a property consultant.
With home seekers having different requirements, Niranjan Hiranandani, managing director, Hiranandani Group and national president, NAREDCO, explains that “For some, time is of essence and so, such home seekers will opt for ready-possession homes, while those who can wait for a year or a bit longer, will find new launches more advantageous.”
Will the cut in construction premium boost realty in 2021?
According to PropTiger’s ‘Real Insight: Residential Annual Roundup 2020’ report, Mumbai and Pune were among the cities that witnessed the highest number of units launched in October-December 2020. So, how will the reduction in premium affect the realty market in Q1 2021? “Until the economy recovers to a point which can be termed ‘near normalcy’, cautious optimism will prevail. Having said that, home buyer sentiment has been improving, since mid-2020. The initiatives by the authorities through 2020 have positively impacted home buying. This is visible in property registration numbers in states like Maharashtra,” answers Hiranandani.
How will the 50% cut in premiums help home buyers in Mumbai?
Another trend that the pandemic brought along, was preference for properties in tier-2 and tier-3 cities, as compared to tier-1 cities. However, with lower premiums, property experts maintain that an increase in sales in Mumbai can be seen. “The impact of such moves that define ‘ease of doing businesses’ are uniformly felt across micro-markets. The enhanced offtake of homes in tier-2 and tier-3 cities, through the second half of 2020, was largely due to the remote working policies that became a norm. This segment of buyers, who were living in rented premises in metro and tier-1 cities and were working from home, opted to buy their own homes in tier-2 and tier-3 cities. The segment, which prefers to buy properties in markets like Mumbai and its suburbs, will obviously take advantage of this move by the state government and we may see a slight spike in sales across Mumbai and the suburbs,” says Hiranandani.
The decision of reducing stamp duty rates, in August 2020, paved the way for greater number of property registrations, recalls Cooper. “Similarly, this move of reducing the premiums, will pave the way for the realty market’s growth in the Q1 of 2021. The upcoming budget of 2021-22 is expected to further boost the sector and help increase the sales and investments,” he concludes.
Till when is the Maharashtra government reducing the premiums on realty development by 50%?
The Maharashtra government’s move of reducing premiums by 50% is till December 31, 2021.
What government-backed initiatives are giving a boost to the realty segment?
Record-low interest rates on home loans, stamp duty reduction and now, the reduced premiums, are giving the realty industry a much-needed boost.
How will the cut in construction premiums help developers?
Maharashtra’s reduction in construction premiums will ease the liquidity constraints faced by the sector, thereby, helping developers to avoid project delays, boost new launches in the market and lead to a reduction in project costs.