Can’t afford a Mumbai home? Well, Fadnavis govt is taxing it out of reach

3 min read

If you thought the BJP-led government would bring relief to home buyers in Maharashtra, here’s a dampener: Mumbai’s realty prices are going nowhere but up as the newly-installed Devendra Fadnavis government has decided to increase the ready reckoner (RR) rates for Mumbai by an average of 15 percent with some areas even witnessing a steep hike of up to 40 percent.

For the real estate developer, the move is a double whammy as he not only has to pay higher stamp duty for land transactions but will also have to convince the buyer to shell out more to purchase property. The buyer meanwhile is steering clear from making such buys due to unaffordable prices. The average cost of a house in the Mumbai Metropolitan Region in 2014 was a whopping Rs 1.3 crore while the weighted average cost of a house in Greater Mumbai has soared to an all-time high of Rs 3 crore.

Posh and expensive areas like Worli and the commercial hub of Bandra-Kurla Complex will bear the steepest hike of around 40 percent while rates in the suburbs like Goregaon, Borivali, Malad, Chembur, Ghatkopar and Vikhroli have also increased.

“If one wants to buy property in E Moses Road in Worli, the taxes will be based on the new rate of Rs 23,959 per square foot, which is a 40 percent increase from the 2014 figure. In Napean Sea Road, the taxes will be based on Rs 79,005 per sq. ft, a 15 percent increase,” as the current report says.

Since the RR rates are used as a benchmark to calculate registration, TDR, fungible FSI, etc, a steep hike will adversely affect sales because these costs make up a good chunk of the final price. Little wonder that developers are miffed, as Mumbai real estate is already suffering from low turnover and high unsold inventory.

“All taxes, including services tax, VAT and TDS will rise. Everything about real estate sector is interlinked to the ready reckoner rate. People can’t even afford the prevailing prices and the further increase in rates has reduced the scope for price correction. Potential flat buyers have to brace up to pay more,” Pankaj Kapoor, MD at Liases Foras, a real estate research firm, told Firstpost. He further argued that the state government should have increased the RR rates if property was selling at the current market rates. ” But if prices are not selling even at this rate, an increase in RR will only hurt demand and increase the cost of construction, leaving no margins for realtors,” said Kapoor.

While new supply continued to pour into the market, sales have actually declined and remained subdued, resulting in the inventory swelling from 16,600 units in 2009 to 53,856 units as of September 2014, showing data from Liases Foras.

Secondly, even though builders have been mandated to sell apartments on the basis of carpet area alone, the revenue department continues to charge stamp duty on the basis of built-up area.

The weeding out of black money in real estate causes the market to behave in a more rational manner when it comes to the pricing of projects. Also, it makes little sense to view the added financial outlay as a wasted expenditure, as it actually increases the investment value, and therefore potential resale value, of the property,” said Rohan Sharma, senior manager.