Increase in stamp duty in Mumbai affecting real estate market

 The Maharashtra Government recently announced to impose Metro cess from April 1 2022. An additional 1 percent cess will be levied on all property purchased from April 1 in Mumbai, Pune and Nagpur. | FPJ Correspondent

The residential segment was the only silver lining in an otherwise tepid 2020 for the real estate sector. While residential sales were adversely affected between April and June 2020 due to the uncertainty resulting from the COVID-19 virus outbreak; they bounced back strongly between October 2020 and March 2021. The market demonstrated a commendable recovery by recording huge sales in Q3 and Q4 of 2020/21.

The Maharashtra Government recently announced to impose Metro cess from April 1 2022. An additional 1 percent cess will be levied on all property purchased from April 1 in Mumbai, Pune and Nagpur. This cess is for funding the Metro rail projects and transport-related projects in the state. The 1 percent Metro cess is expected to augment revenues of the Metro rail services and service the loans, which funded the Metro project. The cess will take the stamp duty on property registration from 5 percent to 6 percent in Mumbai and from 7 percent in Pune, Nagpur and Thane.

Mumbai witnessed 96 percent of pre-COVIDsales in Q4 2021, according to a report by JLL, and sales increased by 30 percent and 130 percent on a year-over-year basis in 2021. Demand momentum appears to be returning, and purchasers in the affordable and mid-segment will feel additional cost burdens during such a time. In the current market recovery, the Metro cess will be detrimental. While we understand that Metro Works need to be properly funded by the State Government to de-clutter the cities and ease traffic, we need to rationalize why the burden of such costs have to be borne solely by Homebuyers.

Further, the timing of this decision should also be brought into question; It has only been 2-3 quarters since residential sales volumes have seen increase. Buyers seem to be shaking off the COVID-19 uncertainty and returning to making purchase decisions. Maharashtra is already one of the most expensive states to own property and increasing transaction costs are bound to affect volumes.

At a global level, we are dealing with a war which has further affected already high input costs for developers. Both Steel and cement prices are trading at all-time highs and other input costs are also on the rise. Keeping this in mind, a reduction in sale volumes and/or sale values could provide very detrimental for the real estate industry.

Therefore, placing the burden of funding metro works on new homebuyers was probably not the best way to raise money for metro construction work. This could have been done in several other ways. One such way would have been to marginally increas property tax. Keeping in mind the number of people that pay property tax, the increase would have to be so miniscule that it wouldn’t have affected the day to day lives of individual or family. With a wide base, the collections would also have potentially been higher. Further, it would also be a more equitable way to treat the matter as the metro, once constructed, will eventually benefit everyone and not only those who purchase homes.