Developers say that the prices of property will not go down, instead they will further rise in the wake of fresh hike in ready reckoner (RR) rates announced by the Maharashtra government on Tuesday. RR rates are used to calculate the minimum registration and stamp duty charges paid at the time of registering the property.
It is also the rate fixed by the government below which sale of property cannot happen in the given area. The RR rates have gone up by up to 20% in Mumbai, which means outgo of higher stamp duty for home buyers. In Pune, the rates have touched a maximum of 20%.
According to developers, all the government-related charges like stamp duty, registration, taxes, etc, that used to account for 12-15% of the cost of an apartment, will now rise to 15-18%. Worse, the Reserve Bank of India (RBI) does not acknowledge these costs in the home loans disbursed to customers, which means an added burden on home buyers.
The move has been strongly criticised by the developers on grounds that it has come at a time when property market is sluggish and any increase in prices could have a negative impact on sales.
“This hike was completely uncalled for. The costs like lease rentals, property taxes, registration charges, stamp duty will only go up leading to further burden on consumers. This sort of hunger to increase revenues by the state government is making consumers suffer. Also, now under section 50C of the Income Tax Act, if a property is being sold below the RR rate, the difference is taxable on both consumer and developer, which will lead to further problems in doing business,” said Lalit Kumar Jain, chairman, Confederation of Real Estate Developers Associations of India (Credai).
“Charges like stamp duty, registration charges, service tax, value added tax, society and maintenance deposit, used to account for 12-15% of the cost of an apartment, with this latest hike it will now be 15-18% of the cost of an apartment. A customer is not even eligible to include these charges in his/her home loan by RBI, so the pain for developers and consumers is only set to increase,” says Sunil Mantri, president, National Real Estate Development Council. In 2008-2009, these charges accounted for about 10% of the cost of an apartment, Mantri said.
Developers also say, that now, since property tax is calculated on RR rates, the increase will pinch the existing occupiers as well, with higher tax outgo.
In Mumbai, over the last six years the RR rates have almost doubled. Mumbai city is divided into 737 development pockets or value zones. The RR rates have been increased by less than 20% in 711, or 96% of zones, while the remaining 26 areas have seen an increase of close to 20% in these rates.
Like last year, up-market locations in south and central Mumbai Worli, Prabhadevi, Mahalaxmi, Parel and Eplphinstone saw the highest increase in RR rates.