Home >Markets >Mark To Market >Maharashtra realty demand hinges on transfer of premium cut benefits

In yet another attempt to boost real estate demand, the Maharashtra government has halved premiums for the sector. This will be applicable to ongoing and new real estate developments till 31 December 2021. This is also in addition to stamp duty cuts applicable in the state until March 2021.

Premium refers to the number of charges that are levied by the state with respect to approvals for initiating, progressing and completing an area in a project. These include premium paid for floor space index, construction of lifts and lobbies, among others.

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Following this, shares of Mumbai-focused realty companies such as Oberoi Realty Ltd, Godrej Properties Ltd and Kolte-Patil Developers Ltd touched new 52-week highs. Analysts expect Oberoi to save on approval costs for its upcoming Thane projects.

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Godrej Properties has many projects in Mumbai and Pune and these cities contribute about 65% in its overall net asset value, according to analysts.

Builders who want to avail of the premium concession will have to pay full stamp duty for their customers by 31 December. This means that for customers buying properties in these projects, the effective stamp duty will be nil.

Analysts say that since this is a limited period offer, they expect developers to aim for faster turnaround of projects. However, incremental demand would depend on the extent to which realty prices correct further.

“Builder premiums constitute around 18% of total project cost in a mid-income housing project in Mumbai and it is expected to reduce by 50%, thereby reducing the cost by 9% while a stamp duty will need to be paid (5%) resulting in around 3-4% price correction," analysts at JM Financial Institutional Securities Ltd said in a report on 7 January.

Note that reduction in premiums is one among the many recommendations of the Deepak Parekh committee.

According to the committee, developers in Mumbai have to shell out as many as 22 premiums.

This is significantly higher compared to developers in Bengaluru who have to pay 10 different premiums, five in Delhi and three in Hyderabad.

Sharing a similar view, Anuj Puri, chairman at Anarock Property Consultants, said, “The average property prices in Mumbai are a staggering 17,845 per sq. ft. In Bengaluru, it is just 4,955 per sq. ft, and in Pune, it is approximately 5,487 per sq. ft. While there are several factors responsible for Mumbai’s sky-high housing prices, the hefty premiums that developers have to pay to the state government are definitely among the prime reasons. That said, the government will also have to ensure that the resulting cost benefit is passed on to homebuyers."

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