By Lancelot Joseph. Executive Editor, Business India

On 6 January, the government of Maharashtra announced approval of the lowering of construction premium by 50 per cent until December 2021. In August 2019, the state government had also slashed the stamp duty levied on property deals – a blockbuster for the real estate industry, which has hailed the announcement.

“It will give a big respite to the developers, as the cost of premium as well as approval cost contribute 35-38 per cent of the project cost and, hence, the project cost will now come down substantially,” explains Ashok Mohanani, president, NAREDCO, Maharashtra, adding that Mumbai alone attracts about 22 per cent premium, which is higher than in other top metro cities. 

Obviously, higher premiums put additional financial burden on developers, leading to higher costs for the home-buyers. “Projects that wish to avail the benefit of concession will have to pay the full stamp duty on the sale of flats, whereby the consumers will get direct benefit of this concession, granted by the state government,” adds Mohanani. “The decision will also bring the relatively higher construction premium on a par with other states and the lending institutions will find project funding more viable, which will result in more funding into the state’s real estate sector”. 

“This move will help reduce the landed cost for the developers, thereby rationalising the cost and reducing the burden on customers,” observes Siva Krishnan, MD & India head, residential services, JLL India. “It is expected to further trigger the recovery of the residential real estate market, which has seen a good uptick in last two quarters, due to factors like lower interest rates and pro-active measures from the government like stamp duty reduction. These moves will go a long way in enticing both end users and investors back to the residential market”. Krishnan believes that the country’s residential sector is already seeing acceleration in sales, leading to a fast-paced recovery from the impact of the pandemic. 

Positive momentum

“After the stamp duty cut, this decision to cut premiums by 50 per cent has been a masterstroke,” remarks  Bhushan Nemlekar, director, Sumit Woods Limited. “This will give a much needed impetus to the real estate industry in the state. I am sure we will see a positive response from the developers and the stakeholders. I feel that, even the revenue of the state government and the corporation will increase, because of this decision. This will also ensure a positive momentum going into the new year, after an effective last quarter for the industry on the back of lower interest rates, reduced stamp duty and festive offers by developers”.