How reduced Stamp Duty on property registration will boost realty demand

September 4, 2020 2:09 PM

The potent amalgamation of reduction in stamp duty, GST exemption, and the lowest home loan interest rates might prove to be a strong determining factor in favour of the ready-to-move-in homes.

stamp duty, stamp duty cut, reduced Stamp Duty on property registration, boost realty demand, stamp duty cut in maharashtra, GST exemption, homebuyersThe interest of the buyer has been protected with the recent Supreme Court verdict, where as part of the builder buyer agreement, homebuyers would be appropriately compensated for project delays.

The recent cut in stamp duty announced by the Government of Maharashtra has been a welcome relief for the sector and for developers in particular. Maharashtra may well have set the stage for other State Governments to emulate this move and set in motion the long-awaited revival of demand in the sector.

The real estate market has found itself on shaky ground for a while now, impacted by the onslaught of various procedural and regulatory reforms. The liquidity crunch caused by severe consumption downfall, due to the NBFC crisis, also didn’t help matters – causing the market to burrow its way into a deeper hole. All these factors contributed heavily to upset the established status quo of a time that was existent for decades. It resulted in low market sentiments once they came into the picture.

The global health pandemic has not furthered the cause of the sector. Unfavourable conditions arising from the steps taken to circumvent the contagion have only compounded issues. The effects of the lockdown that was imposed by the government are still lingering. Economic breakdown that occurred during the time is yet to find the wind, to sail against the waves of despondency that are besieging the sector. The disruption in supply chain and labour availability has real estate still finding its way out of the situation, to where it was pre-COVID. This period might have not seen spectacular residential sales, but it did see unprecedented success in the demand for commercial real estate.

We cannot overlook that the government has done enough and more to help the sector in order to get back on track and towards recovery. This has been the trend not only in recent times, but also much before COVID – 19 came to our nation’s shore. From providing last-mile funding to stuck housing projects; to assorted stimulus packages, the support that has been provided to the sector to help climb out of the abyss, has been phenomenal. Not only has the government been supportive in extending timely stimulus to lend a helping hand to the economy, but it has also made it possible to resolve one of the main challenges the sector faces. This challenge holds more prevalence especially in the backdrop of the current crisis, where there is so much ambiguity on contractual agreements. The inclusion of ‘force majeure’ clauses in contracts has provided significant respite to both developers and contractors.

The apex banking authority RBI has also done its bit by announcing the highest ever reduction in repo & reverse repo rates and the extension of loan moratoriums by 3 months to fuel demand in the market along with other monetary measures introduced in its efforts to buoy market sentiments. The interest of the buyer has been protected with the recent Supreme Court verdict, where as part of the builder buyer agreement, homebuyers would be appropriately compensated for project delays.

The cut in stamp duty has been implemented at a state level by the Maharashtra government in hopes of giving a boost to its stagnant real estate market. However, this reduction in duty from 5% to 2% is a temporary measure only, in force until December 2020. The move might have pushed investor sentiments but from the perspective of buyers, it is imperative that the cut is further strengthened by tax incentives and builder discounts. The realty sector already burdened with a large stockpile of unsold inventory will require developers to rethink their selling strategy amidst consumer confidence that has hit ‘rock-bottom’, lack of access to low-cost capital, and anxiety regarding job/work security.

The reduction in stamp duty has positive implications for real estate. It would enhance the latent possibility for economic gains through stamp duty with more efficient taxes. This could mean stability resulting in effective tax reforms while making a noteworthy contribution to the economic activities not just in the realty sector but the entire economy. It will add as an incentive to those ‘fence sitters’; who were undecisive whether to capitalize on the present opportunity to invest in residential properties.

The potent amalgamation of reduction in stamp duty, GST exemption, and the lowest home loan interest rates might prove to be a strong determining factor in favour of the ready-to-move-in homes. However, it is important that the real estate developers piggyback on this measure by ensuring tangible and effective steps are taken at their end to push fair rates, professionalism, and transparency.

(By Nimish Gupta, Managing Director, RICS South Asia)

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