Property prices in new housing projects in Maharashtra could rise by more than 15% because of the sharp hike in ready reckoner (RR) rates announced by the state government last week. This, along with rise in key commodity prices like steel and cement, would lead to higher costs for developers, some of which is sure to be passed on to the consumers.
The average ready reckoner (RR) rates in municipal areas which came into effect from April 1 has been increased by 8.8% — barring Mumbai city where the hike is much lower — after remaining nearly unchanged for the past four years.
Developers have already said last month that they would be looking to increase prices in new launches by 10-15% due to sharp increase of Rs 400-600 per square feet in construction costs with rising inflation in key commodities like steel, cement, among others. There has been a near 40% jump in raw material prices in the last one year.
While at an overall level, rates for Mumbai city have been raised by 0.84% and 3.83% for Mumbai suburban. The rate hike has been steeper for municipal areas of Thane at 48%, Panvel at 9.24%, Navi-Mumbai at 8.90%, and Mira Bhayendar at 8.30%. Similarly, rates have been raised by 12.15% for Nashik, 6.12% for Pune, and 12.36% for Pimpri-Chinchwad municipal regions.
According to industry experts, the rise in input prices, hike in RR rates and the proposed metro cess of 1%, if levied, would increase the burden on homebuyers. The impact of RR rates is expected to be higher in the case of mid and affordable segments as the rate hikes have been higher for suburban municipal areas, which constitute a lion’s share of residential sales and launches in the Mumbai Metropolitan Region (MMR).
Ready reckoner rates are the benchmark valuation of real estate. It is used for both, calculation of capital gains under income tax, and payment of stamp duty to the state government. Also, the premiums, transfer of development rights (TDR), floor space index (FSI) rates are linked to RR rates, which will also add to the cost of houses and would lead to price rise.
Samantak Das, head research and REIS, JLL India said, “The increase in RR rates has come at the most inopportune time when the residential market has been witnessing green shoots of recovery due to affordable synergy of lowest mortgage rates, realistic pricing and developer incentives”. Das said that these increases are likely to dampen the sentiment of homebuyers which will prolong the recovery period, especially in key locations of MMR and Pune.
The impact of RR rate on stamp duty paid by the homebuyers will vary, and will lead to higher payout of stamp duty in instances where the RR rates will be higher compared to the prevailing purchase price. The stamp duty is paid on the higher of the actual purchase price or the prevailing RR rates. After the current revision, if the purchase price is still higher than the revised RR rate, there will be no impact on the homebuyer in terms of stamp duty payout. However, in areas where RR rates are higher, the payout for homebuyers will go up.
While stamp duty may go up on a case to case basis, the FSI premiums are linked to RR rates, and the upward revision will result in the premiums going up, which will impact developers’ overall project cost. “With the input cost burden weighing heavy on developers, the same is expected to be passed onto homebuyers as well. The net impact of higher FSI premiums and rising input costs is likely to result in home prices inching upwards,” Das said.
Anil Pharande, president, Credai Pune said, “Selling price of houses has not increased in the last 5-6 years so an increase in RR rates is totally uncalled for. Premiums, TDR, FSI rates will all increase, adding to our input costs and will directly impact the buyer”.
