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Maharashtra changes stamp duty rates on loan deals

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The decision will increase the cost of registration of documents such as title deed, equitable mortgage, hypothecation submitted for the loans, etc.

In a move that might slightly increase the cost of property registration in the state, the Maharashtra government has increased the stamp duty on registration of various banking agreements related to property sale and purchase, after a cabinet meeting held on December 9, 2020.

The decision will result in the stamp duty increasing from 0.2% to 0.3% of the agreement value on registration of documents, such as title deed, equitable mortgage, hypothecation submitted for the loans, etc. This effectively means that a home loan borrower will have to pay Rs 9,000 to register the loan document, if he is applying for a home loan of Rs 30 lakhs. On the other hand, the stamp duty on home loans where the buyer has yet to get possession has been reduced to 0.3% from the existing rate of 0.5%.

It is pertinent to mention here that when the sale deed is registered with the sub-registrar, the bank that lends the fund to the buyer for the purchase is given the original documents to keep as security, till the loan is fully repaid. To formalize this arrangement, a memorandum of deposit of title deed (MODT) is executed. Under the state laws, stamp duty and registration charges are levied on this document, which must be registered.

Stamp duty is the state government-determined levy that buyers have to pay, as the legal cost of asset acquisition. The registration charges, on the other hand, are paid for the paperwork that government agencies have to carry out, in order to formalize the ownership transfer in case of an immovable asset.

Charges on registration of home loan documents vary from state to state.

Online registration of documents and online filing of notices will attract a stamp duty charge of Rs 15,000 now. The aim of the exercise was to bring uniformity and ensure people comply with the guidelines, the state revenue ministry said.

Recall here that Maharashtra has earlier reduced the stamp duty on property purchases with a view to boosting consumer sentiment in the backdrop of the Coronavirus pandemic that resulted in property registrations in the state hitting record low during the lockdown period.

With the reduction that came into effect in August 2020, the state brought down the stamp duty on property registrations from 5% to 2% till December 31, 2020. After this period, buyers will pay 3% of the stamp duty on property registrations between January 1 and March 31, 2021. This reduction is available to buyers only for a limited period.

The reduction in stamp duty has been a key incentive for property investments, with 78% of respondents in a consumer sentiment survey by Housing.com, saying they want to buy a property in the next year.

To further encourage the builder community, the Maharashtra government recently reduced the construction premium by 50%, offering a major respite to developers. According to Dhiraj Bora, head-Marcomm, Paramount Group, the recent reduction in real estate premiums and stamp duty for Maharashtra has brought a windfall of sales for the region.

After stamp duty cut, Maharashtra hikes ready reckoner rates by an average of 1.74%

Days after announcing a 3% temporary reduction in stamp duty charges, the Maharashtra government has announced a hike in ready reckoner rates

September 14, 2020: Days after it announced a significant reduction in stamp duty, with an aim to boost buyer sentiment in the state, the Maharashtra government on September 11, 2020, announced a hike in the ready reckoner (RR) rates by an average 1.74%. Although marginal, the hike in the RR rates may undo the good done by the stamp duty reduction, industry experts say.

The hike in RR rates — a government-determined value below which a property cannot be registered in a particular locality — would be effective from September 12, 2020, exactly 11 days after the new and reduced stamp duty charges were implemented.  Stamp duty on property transactions is calculated, using the RR rates, also known as circle rates, guidance value, or collector rates. As cities are vast and the value of one area may be quite different from the value of another, the circle rates vary from locality to locality.

The developer community —  which has been reeling under the combined effect of a prolonged slowdown, which has been aggravated by the Coronavirus pandemic and a severe liquidity crunch — has criticized the state government’s move. “It is surprising that in a scenario where everybody was suggesting a price reduction, be it (HDFC chairman) Deepak Parekh, (road and transport minister) Nitin Gadkari or (commerce minister) Piyush Goyal, the state government has instead opted to enhance the RR value,” says Niranjan Hiranandani, president (National) NAREDCO and ASSOCHAM. “Income tax provisions mean that a developer cannot sell at a price point lower than the RR rate, as it translates into taxation burden for both, the buyer and the seller. In this situation, the expectation was that the state government would reduce the value. Instead, it has chosen to increase the same,” Hiranandani added.

According to Ram Naik, executive director, The Guardians Real Estate Advisory, the state government’s move would send mixed signals among the buyers in Maharashtra. “While on one hand, the government is indicating to home buyers that they want them to buy homes, by slashing the stamp duty, it is marginally increasing the ready reckoner rates on the other hand,” says Naik. “This increase, to a certain extent, is going to nullify the gains of the reduced stamp duty for the recently-motivated customer. This increase is also going to force developers to pass on the additional burden of increased premium costs that are linked to the ready reckoner prices, onto the customers. All in all, we could have waited for a better day for such announcements,” he adds.

Others, on the other hand, view the state move as more of a balancing act.

“The government has made a marginal upward revision in locations, where the rates were low and reduced the rates where they were high which has made it more balanced. This is a welcome move in favor of the customers,” said Rajan Bandelkar, president, NAREDCO west, and convener, Housingforall.com.

According to Anuj Khetan, director, Vijay Khetan Group, the government has only rationalized the rates.  “The rates have been slashed in few areas, whereas they have been hiked in some other areas. Therefore, it is not a direct increase in the rates,” says Khetan. “Nonetheless, it is not the right time to do this exercise, when the industry’s balance sheet is under severe stress and the country is reeling under the horrific COVID-19 pandemic,” he adds.

Impact on pricing in key cities

 While the RR rates have been slashed by a marginal 0.6% in Mumbai, the average hike is quite steep in another expensive real estate market, Pune, where rates are now costlier by around 3.91%. “We have parameters to assess transactions and we have seen the maximum transactions in Pune district. Therefore, there has been a rise in the rates here,” inspector-general of registration and stamps (IGR), Omprakash Deshmukh said.

In Raigad and Nandurbar, too, the RR rates are now 3% higher. In Navi Mumbai, the RR rates have been increased by an average of 0.99% while the average hike in Thane has been of 0.44%. The average hike in RR rates in rural areas of Maharashtra was 2.81%.  The average hike in RR rates in areas falling in influential zones of Maharashtra was 1.89%. Rates have been increased by an average of 1.02% in areas falling under the corporations, while the hike has been of 1.29% in areas falling under municipal councils.

Stamp duty reduction in Maharashtra

With stamp duty collection touching a historic low, amid the Coronavirus-induced lockdowns, the Maharashtra government on August 26, 2020, decided to temporarily reduce the stamp duty on a property purchase in two slabs by up to 3%.

From September 1, 2020, to December 31, 2020, it decided to charge only 2% as stamp duty on property registrations as against the earlier 5%. From January 1, 2021, to March 31, 2021, the government announced a reduction of only 2%, effectively bring the stamp duty on property registrations to 3% for the three-month period.

Stamp duty in Maharashtra

As a percentage of the property value

Stamp Duty rates till Dec 31, 2020 Stamp Duty rates from Jan 1, 2021-March 2021 Stamp duty  after March 31, 2021
2% 3% 5%

This was in fact the second reduction in stamp duty charges by the state in 2020.  The step was prompted by record low property registrations that caused severe damage to the state’s coffers.

Stamp duty is that percentage of the property value, which buyers have to pay to the state government to get the properties registered in their names. Additionally, 1% of the property value has to be paid as the registration charge. This significantly increases the total cost of the purchase and often acts as a deterrent for buyers in Mumbai and Pune, where the cost of properties is already high and buyers may not be in a position to arrange for the extra costs.

The developer community, which has been demanding that the state reduce the stamp duty and rationalize RR rates, as the cost of buying a property in key cities, especially Mumbai, is quite high, had then welcomed the move.

“We thank the government for acknowledging the slowdown in the overall economy and reducing the stamp duty rates, to stir up demand for homes. This will immensely benefit home buyers, as well as boost the real estate sector,” said Shailesh Puranik, MD, Puranik Builders.

“This is a fantastic movie. Kudos to the Maharashtra government! It will certainly boost sales, as all those sitting on the fence will take the plunge. What is commendable is that they also put a timeline to it, which encourages buyers to buy sooner rather than later,” added Ram Raheja, director, S Raheja Realty.

With an aim to boost sales in the state earlier, especially in prime residential markets such as Mumbai, Pune, and Nashik, the Maharashtra government, while presenting the annual budget in March 2020, lowered the stamp duty for these cities from 6% to 5% for two years.

However, before the reduction could make an impact, the central government announced a nationwide lockdown on March 24, 2020, that remained in force till May 30, 2020. During this period, property registration operations were partially suspended in the major markets of the state, severely impacting revenue.

Housing sales in Mumbai, for instance, fell, 81% in April-June 2020, year-on-year(y-o-y), shows Housing.com data. Mumbai developers sold a total of 4,559 units between April and June 2020 as against 23,969 units in January-March, 2020 and 29,635 homes in Q2 2019.

What makes matters worse is that Mumbai also has the highest inventory stock, as compared to other leading residential markets in India. After seeing an annual reduction of 14% in its unsold stock, India’s financial capital currently has an inventory consisting of 2,76,492 units. At 37%, Mumbai is the highest contributor to the national inventory stock level, which stood at 7,38,335 units, as of June 30, 2020. At the current sales velocity, builders in this market would take approximately 40 months to sell off this stock.

In the Pune market, builders sold a total of 4,908 units during April-June 2020, as compared to 18,580 units in the same period last year. Pune also has an unsold inventory of 1,35,124 units, second only to Mumbai. The inventory overhang in Pune is, however, lesser at 30 months.

Inventory overhang is the time sellers would take to offload the unsold stock in a market, based on the current sales velocity.

Property to cost less in Mumbai, Pune, and Nagpur as stamp duty cut by 1%

In a move that might boost home buyer sentiment in prime residential markets of the state, the Maharashtra government while presenting its Budget for FY 2020-21 on March 6, 2020, proposed to reduce stamp duty on property purchase by 1%

March 6, 2020: In a move that might boost home buyer sentiment in prime residential markets of the state, the Maharashtra government while presenting its Budget for FY 2020-21 on March 6, 2020, proposed to reduce stamp duty on property purchase by 1%. The reduced rates will be applicable in the areas falling under the MMRDA (Mumbai Metropolitan Region Development Authority) and municipal corporations of Pune, Pimpri-Chinchwad, and Nagpur for two years.

Currently, homebuyers in Mumbai, which is counted among the most expensive property markets in the world, pay a stamp duty of 6% on property purchase, apart from a 1% registration charge.  In Pune, the stamp duty currently is 6%.

Stamp duty is a government-determined charge home buyers have to pay during the time of property registration, apart from a standard 1% registration charge. Stamp duty charges differ from one state to another, considering land is a state subject.  Rules in this regard are governed by Section 3 of the Indian Stamp Duty Act, 1899.

The developer community has lauded the state government’s moves to reduce the stamp duty.

“Any cost reduction is welcome … This move will positively impact homebuyer sentiment. I appreciate the concern shown by the state government to help the home buyer and the real estate industry,” said Niranjan Hiranandani, president, NAREDCO.

“The industry welcomes the state government’s initiative to provide relief and promote the revival of the sector. Huge unsold inventory and ready-to-move-in properties in Mumbai, Pune, and Nagpur are likely to benefit from this announcement. The festivities like Holi and Gudi Padwa are also approaching and we are hopeful that the sales will see an uptick in the next couple of quarters,” said Farshid Cooper, managing director of Spenta Corporation.

Data available with PropTiger.com show there were a total of 296,465 unsold housing units across the MMR region as of December 2019.  Also, a majority of the affordable stock lying unsold across India’s nine major markets is in Mumbai – India’s financial capital currently has over 1.38 lakh unsold affordable homes. Pune has an unsold housing stock consisting of 144,300 housing units currently.

“Lowering down the stamp duty charges from 6% to 5% (in Mumbai) is a good step taken in today’s Budget which will take some burden off the home buyers. Overall, (this is) a positive step by the government before Gudi Padwa,” said Vikas Jain, managing committee member, CREDAI-MCHI Raigad Unit, and CEO of Labdhi Lifestyle.

Do not hike stamp duty to increase revenue: Maharashtra finance minister

Maharashtra’s finance minister Ajit Pawar has asked officials to refrain from increasing stamp duty on property deals and instead, focus on rationalizing ready reckoner rates, to increase revenues

January 10, 2020: Maharashtra finance minister Ajit Pawar, on January 9, 2020, asked officials not to hike stamp duty on property deals. The revenue should be increased, instead, by rationalizing ready reckoner rates (official rates of property for the purpose of computation of duty), he said. Pawar gave these instructions during a review meeting of the Department of Registration and Stamps, an official statement said.

It was also decided during the meeting that there should be a separate cadre of officers, for providing better services to people visiting Registration and Stamps offices. It was also decided that the Aadhaar card would be enough as identity proof for document registration and two witnesses will not be needed anymore for that purpose.

Amnesty scheme for stamp duty penalty

March 12, 2019: The government of Maharashtra, on March 1, 2019, announced an amnesty scheme with respect to the penalty that can be levied for the insufficient payment of stamp duty made in the past. The scheme proposes to limit the penalty payable on certain transactions to 10% of the deficient stamp duty, instead of the 400% which can be levied in the normal course by the government. The scheme applies to all the transactions of sale or transfer of tenancy rights, of residential houses within Maharashtra and is available only for documents that have been executed on or before December 31, 2018. The application, along with the instrument and supporting documents, has to be made within a period of six months from March 1, 2019, i.e., by August 31, 2019, the period up to which the scheme will remain open.

Stamp duty on land deals in MMR 

People who executed land deals in the Mumbai Metropolitan Region between May 19 and September 19, 2017, may have to pay additional stamp duty, with the government approving the levy of stamp duty as per the 2017-18 ready reckoner rates, as against the 2016-17 rates

August 1, 2018: The Maharashtra cabinet, on July 31, 2018, has approved the recovery of stamp duty on land transactions executed in the Mumbai Metropolitan Region (MMR), between May 19 and September 19, 2017, as per the 2017-18 ready reckoner rates. Those who executed land deals during this period, will have to pay the difference between the stamp duty as per the 2017-18 rate and that as per the 2016-17 rate (which they may have paid), a government official said.

“The government had stayed the recovery as per the 2017-18 rate, on the request of the Maharashtra Chamber of Housing Industry. The chamber contended that the stamp duty is levied as per the 2016-17 rates because the new rates were exorbitant,” he said. “A study group was set up and now, the stay has been lifted after receiving its findings. Today, the cabinet approved the recovery of an additional amount of stamp duty for this period. However, the penalty (for late payment) will be waived,” the official said.

In another development, the cabinet also decided to allot 5.6 hectares of government land at Balewadi near Pune, for the Hinjewadi-Shivajinagar stretch of the Pune Metro. As per the market rate, the price of the land is Rs 153 crores and it is being allotted, as part of the state’s share in the project cost, the official added.

Source – https://housing.com/news/stamp-duty-land-deals-mmr-recovered-per-2017-18-rates/

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