Maharashtra realty boost: Construction premiums are slashed by 50%

In a major decision that will give a fillip to the real estate sector, the Maharashtra cabinet on Wednesday passed a proposal to slash construction premiums by 50%

In a major decision that will give a fillip to the real estate sector, the Maharashtra cabinet on Wednesday passed a proposal to slash construction premiums by 50% under the new DCPR rule 2034 for all ongoing and new projects till December 31, 2021. The decision will also benefit homebuyers, as developers who avail the concession will have to pay the stamp duty on behalf of the consumers.

Owing to the coronavirus-induced lockdown and liquidity crunch, the construction activity saw a slump in the state with very few new projects coming up. (HT Photo)

Owing to the coronavirus-induced lockdown and liquidity crunch, the construction activity saw a slump in the state with very few new projects coming up. Subsequently, the state appointed a committee led by HDFC chairman Deepak Parekh, which recommended slashing the construction premiums.

The municipalities charge this premium on floor space index or FSI, a tool that defines the extent of construction that is permissible on a plot. It is the ratio of the total built-up area to the total plot area. Premiums and taxes constitute a huge portion of the project costs. This severely reduces the ability of the builder to reduce the costs which ultimately impact the homebuyer.

A senior urban development department (UDD) official said, “According to the revised scheme, developers will have to pay premiums based on the ready reckoner (RR) rates of 2019 or 2020, whichever is higher. All real estate premiums and charges are calculated on the basis of RR rates. Developers who opt for the 50% reduction in premiums will also have to pay the entire stamp duty when they sell flats to buyers.”

Builders will have to give an undertaking to the local bodies that they will pay the entire stamp duty and not charge any stamp duty from homebuyers, the official added.

The state has been taking steps to give an impetus to the realty sector that was sluggish. In September, the government lowered stamp duty from the existing 5% to 2% till December 31, 2020, and pegged it at 3% from January 1 till March 31, 2021. After the reduction in stamp duty charges, there was a jump in property sales in Mumbai and other major cities.

The proposal was discussed in the previous cabinet, but was pushed back after cabinet ministers from the Congress raised some issues with the proposal calling it too builder-friendly. Leader of Opposition Devendra Fadnavis too criticised the decision and said it was drafted for the benefit of a few big builders and will lead to the windfall gain to some of the players from the industry.

BJP leader and Bandra legislator Ashish Shelar questioned the government and asked if the decision would make homes affordable for people. “The government gave concession worth crores of rupees to developers to give a push to the construction activity, but will this benefit common man? Will homes for them become affordable,” asked Shelar in a statement.

Shelar further added the decision to make the developer pay the stamp duty for the homes is an eyewash. “Beware, if you dole out premium concession to builders and bring in a condition to make builders pay the stamp duty to fool the people. We will question you if you make builders pay stamp duty after raising the cost of flats,” Shelar said.

The sector welcomed the decision as they believe that it would give a boost to the construction activity. Niranjan Hiranandani, president, National Real Estate Development Council (NAREDCO), said, “This move will go a long way in expediting the project completion and the industry will witness new launches in the market. This reduction in premiums will also help in quick turnaround of projects and uplifting the industry sentiment.”

Deepak Goradia, president, Maharashtra Chambers of Housing Industry (MCHI-CREDAI) and managing director, Dosti Realty Private Limited, said the decision served as a big boost to the realty sector. “We welcome this historic decision and are confident that this move will expedite the economic recovery of Maharashtra with more than 250 allied industries, which will generate jobs,” said Goradia.