After Stamp Duty Cut, Maharashtra Hikes RR Rates By Up To 1.74%

Much to the disappointment of the developer community in the region, the Maharashtra government, on September 11, 2020, announced a hike of up to 1.74 per cent in the ready reckoner (RR) rates, a government determined value below which a property cannot be registered in the state.

Coming after a two-year gap, the increase in RR will be applicable from September 12, 2020. The state government has last hiked RR rates, also known as guidance value or circle rates, in 2017. Buyers have to pay stamp duty, registration charges and other taxes on their property purchases, based on the RR rates and any increase in these rates would increase the cost burden on buyers.

"While the entire real estate industry was expecting a reduction in the ready reckoner rates, the Maharashtra government has increased them. This will have a cascading effect on costs,” said Deepak Goradia, president, CREDAI-MCHI. Goradia's observation comes in light of the fact that developers in key residential makers of Maharashtra are currently sitting on huge unsold inventory.

According to Real Insight: Q2 2020, a quarterly analysis of key residential markets in India, Mumbai and Pune contributed 411,616 units to the unsold stock of 738,340 units as on June 30, 2020. At the current sales velocity, builders in the MMR would take 40 months to sell off the unsold stock while the overhang was 30 months for Pune.

“Property sales in primary, as well as secondary markets in the areas where RR rates are higher than market rates, will slow down due to income tax levied on both, buyers and sellers under Section 43CA (of the Income Tax Act). This move is bound to have an adverse impact on the number of new project launches and puts the viability of ongoing projects under question," Goradia added.

Industry experts are finding the RR rate hike particularly shocking as the move comes days after Maharashtra implemented a temporary reduction in stamp duty on property registrations.

For the three month period of September to December 2020, stamp duty on property registration in Maharashtra has been brought down to 2% from the earlier 5%. For another three months between January and March 2021, the applicable stamp duty on property registrations will be 3%. While there is no clarity what happens after this period, the state government will most likely re-implement the 5% stamp duty.

You may like to read: Maharashtra Cuts Stamp Duty On Property Registrations By 3%

“It is surprising that in a scenario where everybody was suggesting a price reduction, be it (HDFC chairman) Deepak Parekh, (road and transport minister) Nitin Gadkari or (commerce minister) Piyush Goyal, the state government has instead opted to enhance the RR value,” said Niranjan Hiranandani, president (National) NAREDCO and Assocham.  

“Income tax provisions mean a developer cannot sell at a price point lower than the RR rate, as it translates into taxation burden for both, the buyer and the seller. In this situation, the expectation was that the state government would reduce the value. Instead, it has chosen to increase the same,” Hiranandani added.