The increase in ready reckoner rates by 10-40% in Maharashtra will impact sale of housing properties as this increases stamp duty. This will hold true for both primary and secondary sales. The Mumbai housing market had started showing signs of revival in the last 6 months after an 18-month period of sluggishness beginning fourth quarter of 2010. The hiked ready reckoner rates could dampen that revival, given the fact that home buyers are already burdened with service tax, sales tax, VAT, taxes and duties on construction materials, and so on, says Ramesh Nair, Managing Director – West, Jones Lang LaSalle India.
Ready Reckoner rate is primarily used to calculate the market value of flats for the stamp duty and registration charges. In case of Mumbai city, the government has increased the construction cost to Rs 16,000 a square metre (sq mt) from the present Rs 13,000 a sq mt, up 23% in the ready reckoner valuation factor guidelines for 2011.
Land owners will now cite the increased Ready Reckoner value to demand higher prices for their plots. This will negatively affect land sales, as there is already a pronounced lack of liquidity in the sector. Developers will also feel the heat by virtue of having to pay higher capital gains tax.
In many locations, it has been noticed that the Ready Reckoner rates are not in-line with market rates. In 2008-09, the government had provided relief to home buyers and developers by not increasing the Ready Reckoner rates. Given the current uncertainties in the real estate market, the government should definitely reconsider its stand on this issue, says Nair.
About 25% of the real estate cost to buyers comprises of various taxes such as excise, VAT, service tax, stamp duty, octroi and local corporation taxes. Reduction of stamp duty and taxes brings down overall costs and increases the affordability of homes. Any increase in duty and taxes gets passed on to the buyer, and will reduce demand and therefore sales.
This move contradicts government’s aim to encourage and support affordable and mass housing. Instances of understatement of sale proceeds would also come down with a reduction in stamp duty, Nair added.