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Home sales across the top eight cities in India dropped 7% year-on-year in the December quarter, ICRA said in a report. Considering that sales had slumped by 62% in the June quarter following the covid-19 outbreak, the recovery in sales will boost sentiment in the Indian residential market.

Stable prices and falling home loan rates during the pandemic supported the recovery in the real estate sector. The repo rate-linked home loan rates are at a historic low of around 7%. The central and state governments have also taken several measures to improve affordability and stimulate demand.

“While the increase in GDP (gross domestic product) per capita has outstripped the increase in housing prices, which has resulted in some improvement in affordability over the years, overall affordability remains low, with an average house estimated to cost around 44 times the GDP per capita in FY21," said Shubham Jain, senior vice president and group head, ICRA.

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“In recent quarters though, reduced home loan rates, attractive payment schemes, or discounts, and reduction in stamp duties in certain key states on the back of covid-19 has significantly brought down housing costs and stimulated housing demand," he added.

Last May, the government had extended the credit-linked subsidy benefit for the middle housing segment by a year to March 2021. Some states, such as Maharashtra and Karnataka, have also extended the 2-3% cut in stamp duty for a limited time, which helped housing registrations reach all-time highs.

To further improve affordability, the Maharashtra government also reduced construction premiums for developers by 50% up to December 2021. In order to avail this benefit, the developers must pay stamp duty on behalf of buyers. This will reduce the stamp duty charges to 0% for the buyer.

As per an ICRA estimate, the reduction in stamp duty from 5% (pre-covid) to 0% will result in savings of 10 lakh for someone who is buying a house worth 2 crore.

This could help boost demand further in the region.

“Mumbai has among the highest construction premium levies in the country, with such premiums typically amounting to 10-15% of the selling price. As per ICRA estimates, even after paying stamp duty on behalf of buyers, the developer will still gain by up to 4.5% of the selling price, which would result in improved project viability," said the ICRA report.

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