REALTY GETS A “PREMIUM” KICK!

There is no doubt – the Maharashtra Govt is doing all it can to reduce the woes of the realty sector and get it back on its feet again; after all, for the state, realty sector is indeed the mulch cow, one of the biggest money earners and employment generator. If realty booms, all pockets, officially and unofficially, get good money.

The Maharashtra Govt yesterday:

• Slashed the premiums paid by developers to the BMC by 50%.
• Developers who take advantage of reduced premium, will now have to pay the stamp duty on behalf of the homebuyers.
• This 50% ‘discount’ is valid till end of 2021 – 31^st Dec’21.
• Ready reckoner rates of either 1^st April’20 or that of current fiscal, whichever is higher, will be applicable.
• This reduction is applicable across the board for on-going as well as new projects.

Home sales in H2FY21 did rise by 10% (YoY) and this was thanks to the state Govt’s earlier move of lowering stamp duty from 5% to 2% - whose validity ended on 31^st Dec’20. And now, from 1^st Jan till 31^st March’21, a duty of 3% will be charged.

In Mumbai, a developer has to pay some 22 different types of premiums – these are charges payable for getting approvals at various stages. When the builder tends to build more than what the FSI permits, he pays a premium to the municipal corporation to get that extra space. This includes charges like FSI, fungible premium, open space deficiency premium, lobbies, lift wells, staircase – the various premiums being paid are mind boggling. And all these are official; one can only imagine the unofficial money needed to be doled out at every stage. Sometimes, the premiums being paid are more than the cost of the land which the builder paid to acquire!

These various premiums, comprising of one-third of the total project cost for the builder, do impact the viability of the project. Thus, slashing this by 50% should automatically lead to lower costs for the builder and hence should be able to deliver projects faster. The Govt will take a beating on the revenue earned but the hope is that increased volume, more projects getting completed and with more new projects being launched to take advantage of this, will help recoup that loss.

This is most certainly good news for the builder but what about the homebuyer – will he get the benefit? Will the builder pass on the benefit to the buyer?

Unlikely. The builder himself needs a life jacket and when the Govt has thrown them one, they will use it to the maximum, ensuring they do not drown.

The benefit of this 50% cut will be impactful in high-end and luxury projects and those which have been stuck in a morass for too long. Redevelopment might once again get going. Thus approval costs going down will mean more projects will come for approval.

For the homebuyer, many whose projects are stuck up, this a ray of sunshine as it could mean that their dream home might actually become a reality.

In short, the builder might not pass on this benefit to the homebuyer directly but overall, the supply is expected to go up and new projects will get launched and this in turn could bring down property prices – that’s the indirect advantage.

All in all, a good move and little wonder that the realty stocks are celebrating today!