Betting big on real estate for the revival of the economy, the Maharashtra government on Wednesday announced a special fiscal stimulus package for all construction projects in 2021.
In a step that will significantly bring down construction costs, the Uddhav Thackeray-led Cabinet announced lowering of construction premiums by 50 per cent across Maharashtra till December 31.
According to the decision that will come into effect immediately, all new projects sanctioned before the December 31 cut-off can avail the benefit for all premiums and levies paid during the year.
The government has also extended the benefit to ongoing projects, which can avail the concession for premiums paid till between now and December 31.
In the backdrop of allegations raised by Devendra Fadnavis, former chief minister and current Leader of Opposition in the Assembly, the government has, however, ruled that the ready reckoner (RR) values of 2020 or 2019, whichever is higher, will be considered for premium calculation for the scheme.
While RR values are market values of a property determined by the state every year for the payment of stamp duty in the course of property transaction, construction premiums payable by the developer are also linked to these values.
In a letter to Chief Minister Uddhav Thackeray on December 28, Fadnavis had accused the government of “fragmented and prejudiced reduction of RR values in 2020 to give windfall gains to a clutch of developers”.
To allay the perception that it was “builder-friendly”, the government has further made it mandatory for those opting for the sop to pay stamp and registration fee for the flats sold by them in 2021.
The proposal had witnessed a heated debated in the previous Cabinet meeting with the Congress, which was upset at not being consulted, stalling its approval. But on Wednesday, the Congress was also on board.
Building projects in Mumbai, where the average cost of roof over one’s head is still an eye-popping Rs 2.8 crore and land prices are among the steepest, will be the biggest beneficiaries of the move.
Leading industry bodies – Maharashtra Chamber of Housing Industry (MCHI-CREDAI) and National Real Estate Development Council (NAREDCO) – had been actively lobbying for the stimulus, contending that the slowdown and the liquidity freeze, worsened by the lockdown, was eroding wealth and causing job losses besides delaying projects.
The state had previously lowered the stamp duty payable for sale transactions by 3 per cent between September 1 and December 31, 2020 and 2 per cent between January 1, and March 31, 2021, which has resulted in an increase in the volume of property transactions in the September-December period as compared to the same time last year.
An expert panel headed by HDFC Chairman Deepak Parekh had on June 14 demanded that all premiums, cess and levies for the construction sector be halved by 50 per cent. The panel had argued that these charges account for 30 per cent of the total project cost.
Drawing comparisons with Delhi, Bengaluru and Hyderabad, it had argued that the premiums and charges in Mumbai were significantly higher as compared to other bigger cities. “This heightened costs and increased working capital requirements in a market where lenders were risk averse and reluctant to fund developers.”
On the panel’s recommendation, the state urban development department had originally proposed lowering premiums by 50 per cent for all building projects sanctioned or ongoing before the December 31 deadline where the first installment was paid. This would have meant that the benefit would have extended till the project’s completion, which could take anywhere between four to five years or even more. But the CM, not in favour of giving builders a carte blanche, capped the benefit to payments made until December 31.
Welcoming the move, Dr Niranjan Hiranandani, national president of NAREDCO, said: “It will expedite completion of ongoing projects and spur new launches, pushing the revival of the economy and generation of jobs. The industry applauds the move. It is a win-win for homebuyers and developers.”
The government has, meanwhile, shot down the expert panel’s recommendation for deferring premium payments till the grant of occupation certificate for a project, offering installment facility instead.
Deepak Garodia, president of CREDAI-MCHI, said: “The move will make homes more affordable. It will also make more projects viable and increase the supply of real estate properties, while having a cascading effect on over 250 allied industries.”
While home sales have gradually picked up after the easing of the lockdown, the latest report of property research firm, Liases Foras – released last month – had pointed to an unsold inventory stock of 2.88 lakh homes in the Mumbai Metropolitan Region (MMR) alone, which it said will take at least seven years to sell.