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Sun rises over real estate again

Jai Maharashtra! Realtors hail premium cuts by half

State charges 22 kinds of premiums

After stamp duty discount, the cut in premiums augurs well for buyers and will boost the market sentiment, say developers

MUMBAI, Jan 7 (The Connect) The Maharashtra Government’s decision to cut premiums collected from real estate has been generally welcomed by the industry.

As per the Deepak Parekh committee, the State has as many as 22 premiums that are collected in Mumbai under various heads - including FSI, staircases, lift well, lobbies, etc. This is significantly higher than in all other comparable top cities in the country. For instance, in Bengaluru developers have to pay 10 different premiums and charges, and in Delhi five and in Hyderabad just three.

Anuj Puri, Chairman of ANAROCK Property Consultants, said hefty premiums in Mumbai ultimately result in increased working capital requirements for developers - in a market where lenders are already wary of lending to real estate players. Amidst the ongoing liquidity crunch, these premiums put an additional financial strain on cash-starved developers, making it unviable for many to proceed with development. The disadvantage to homebuyers is that high premium charges lead to increased cost of a residential project, which is ultimately passed on to them.

Rationalizing these premiums will definitely give a boost to Mumbai's real estate industry. Reduced development costs to developers and therefore lower purchase cost to homebuyers can result in increased demand, Puri said.

Property prices in the financial capital are much higher than in other large Indian cities. As per ANAROCK Research, the average property prices in Mumbai are a staggering INR 17,845 per sq. ft. In Bengaluru, it is just INR 4,955 per sq. ft, and in Pune it is approx. INR 5,487 per sq. ft. As a result, the largest potential homebuyer base in Mumbai cannot afford to buy homes here, ANAROCK said.

While there are several factors responsible for Mumbai's sky-high housing prices, the hefty premiums that developers have to pay to the state government are definitely among the prime reasons.

Abhishek Jain, Chief Operating Officer of Satellite Developers Private Limited (SDPL), said after being hit by the pandemic, the real estate sector has seen a solid recovery on the back of stamp duty reduction and a good festive season. The reduction in premiums by 50% will help rationalize input costs for the developers and will go a long way in expediting project completion thereby keeping price escalation in control.

Jain expected that the industry will also witness new launches in the market attracting investments from institutions.

Bhushan Nemlekar, Director, Sumit Woods Limited said "After the stamp duty cut, this decision of the Maharashtra Government to cut premiums by 50% is a masterstroke. This will give a much-needed impetus to the real estate industry in the State.”

“We will see a very positive response from the developers and the stakeholders. I feel that even the revenue of the State Government and the Corporation will increase because of this decision. This will also ensure a positive momentum going into the New Year after an effective last quarter for the industry on the back of lower interest rates, reduced stamp duty and festive offers by developers," Nemlekar said.

“It is the much asked for and required icing on the cake for the real estate sector, especially in the state of Maharashtra," said Kaushal Agarwal - Chairman, The Guardians Real Estate Advisory.

This will benefit the supply side immensely, he said and explained that It will also help developers pass on further benefits to homebuyers, invigorating demand for real estate projects that are under construction. This move is likely to propel developers to offer extended payment holidays and also give lucrative price proposals to buyers in projects where the inventory has been selling slowly.

While the pandemic and subsequent lockdowns made developers focus on completing existing projects and largely postpone launching new ones, this move of halving the different kinds of premiums and levies is going to make developers contemplate going back to launching new projects, Agarwal said.

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