scorecardresearch
Follow Us:
Wednesday, January 27, 2021

Maharashtra’s real estate stimulus package explained: Fee discounts for developers, duty free homes for buyers

The government’s latest stimulus package includes measures for lowering upfront costs of construction projects and is focussed on creating an ecosystem that aids domestic demand and building of more homes.

Written by Sandeep A Ashar , Edited by Explained Desk | Updated: January 11, 2021 7:33:13 am
Buyers investing in newly built homes in the coming year won’t need to pay any stamp duty for their sale agreements.

Maharashtra Chief Minister Uddhav Thackeray Wednesday unveiled his government’s biggest coronavirus financial incentive package so far, betting big on the real estate sector for the revival of the state’s economy.

The government’s latest stimulus package includes measures for lowering upfront costs of construction projects and is focussed on creating an ecosystem that aids domestic demand and building of more homes. Industry captains have lauded the move as bold and big. We explain the key takeaways for various stakeholders.

A limited-time offer: Flat 50% off on premium fees

Developers availing the benefit will be entitled to pay various premium charges payable to the state and municipal agencies at 50 per cent concessional rates. The offer is valid till December 31, 2021. New construction projects – regardless of size and type-sanctioned in the state on or before the December deadline will be entitled to the perk for premiums paid during the year. Additionally, ongoing projects can also avail the benefit for premium instalments/amounts paid till December 31.

Applicable premiums

In Maharashtra, builders pay premiums for availing additional buildable area or floor space index (FSI) for projects. Premiums are payable for compensatory fungible FSI (in Mumbai) for residential and commercial projects. For specialised projects – such as IT parks, biotech parks, commercial business districts, etc – premiums are collected for incentive FSI offered by the state. Further, premiums are also payable for area concessions offered for staircase, lift and lobby portions in cases of genuine hardship. The 50 per cent discount will be applicable to all of these. These charges are calculated on Ready Reckoner (RR) rates, which are market values of a plot determined by the state.

📣 JOIN NOW 📣: The Express Explained Telegram Channel

An expert committee, led by HDFC chairman Deepak Parekh, had earlier said that construction premiums and levies make up for 30 per cent of a construction project cost in Mumbai. While the panel had also recommended slashing of other fees – including development charges and land under construction fees – for construction projects, the government has shot it down.

Windfall?

Leader of Opposition (Assembly) Devendra Fadnavis accused the government of “fragmented and prejudiced reduction of RR values in 2020” before the announcement of the concession to give a “windfall to a clutch of developers.” In the wake of the allegations, the state has now ruled that the RR values of 2020 or 2019, whichever is higher, will be considered for calculating premiums. Industry bodies – the Maharashtra Chamber of Housing Industry (CREDAI MCHI) and the National Real Estate Development Council (NAREDCO)- have been lobbying for the stimulus, contending that the slowdown and the liquidity freeze, worsened by the Covid-19 lockdown, was eroding wealth and causing job losses besides delaying projects.

What’s in it for homebuyers?

Homebuyers also have reason to cheer. To dispel the notion that it was builder-friendly, the government has ruled that builders availing the special scheme will have to compulsorily bear stamp duty and registration fees for homes sold during the years in the beneficiary projects. In other words, buyers investing in newly built homes in the coming year won’t need to pay any stamp duty for their sale agreements.

While the government has asked developers to share the list of all flat buyers who benefited from the perk and also submit an undertaking that no stamp duty will be collected from flat buyers, questions on how this will be ensured on the ground remain. During Wednesday’s cabinet meeting, ministers asked for this information to be shared on the Real Estate Regulatory Authority (RERA) website. The state also has plans to ask local bodies to display a list of beneficiary projects.

Will housing become more affordable in Mumbai?

That’s a million-dollar question. The 50 per cent reduction in premiums will definitely result in approvals to many more projects and increased housing stock in Mumbai and the rest of the state. However, Mumbai – where the average cost of a roof over one’s head is an eye-popping Rs 2.8 crore – has long defied the simple economics of abundant supply acting as a check on price rise. Developers certainly feel that the sector-specific stimulus will result in homes that are more affordable.

Deepak Garodia, President, CREDAI MCHI, said, “The move will reduce the cost of home buying, making homes more affordable. It will also make more projects viable and increase the supply of real estate properties, while having a cascading effect on over 250 allied industries.” But the Opposition feels otherwise. Ashish Shelar, former BJP Mumbai chief and current MLA, said there was no clarity in the government’s package on how the end user would be benefitted and how homes would become more affordable.

Civic coffers hit

Income from construction and levies is the third highest revenue grosser for the Mumbai municipality, India’s richest civic body. But with the construction industry reeling under a prolonged lockdown, the BMC’s income from the source had witnessed a sharp dip in the last four years.

Consider this. In 2017-18, the BMC had earned Rs 4193 crore from construction premiums and levies. But by 2019-20, this had dropped by over 40 per cent to Rs 2993 crore. Between April to August this year, the civic body managed to collect only Rs 262 crore amid restrictions in construction activity due to the lockdown. Ahead of the 2019 assembly polls in Maharashtra, the previous Devendra Fadnavis-led government had also lowered premiums for additional FSI. In September, 2020, Mumbai civic commissioner Iqbal Singh Chahal, while consenting to the government’s proposal to slash premiums, had expressed concerns that the move could lead to a further drop in revenues.

However, a senior state official argued that “given the poor collections in 2020, the potential loss in absolute numbers due to the lowering of premiums won’t be much.” The government is hoping that the rush to avail the sop will fuel the property market and increase volume of construction projects, as was witnessed in the case of stamp duty concessions announced by the state previously. Besides Mumbai, neighbouring Thane, where construction premiums accounted for 19 per cent of the civic body’s total income, may also take a sharp hit in potential income. In Pune and Nagpur, construction premiums/levies make up for 8 pc and 4 pc of the municipality’s annual income respectively.

Extended focus on real estate

This is the second fiscal stimulus extended to the sector post the easing of coronavirus curbs. The state had previously lowered the stamp duty payable for sale transactions by 3 per cent between September 1 and December 31, 2020 and 2 per cent between January 1, 2021 and March 31, 2021, which has resulted in an increase in the volume of property transactions in the September-December period as compared to the same time last year. The state has also adopted a liberal FSI policy while unveiling new uniform development control rules applicable for construction projects across the state with the exception of Mumbai.

📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines

For all the latest Explained News, download Indian Express App.

0 Comment(s) *
* The moderation of comments is automated and not cleared manually by indianexpress.com.
Advertisement
Advertisement
Advertisement
Advertisement