The real estate sector has been facing a slowdown for the past few years which has been exacerbated by the coronavirus pandemic, leading to sales being plummeted and construction workers abandoning project sites in hordes. In a move to revive the sluggish sector, the government of Maharashtra has announced a cut in Stamp Duty and other levies for buying and selling of properties in urban and rural areas. The reduction has been in two slabs – the duty will be lowered from the existing 5% to 2% for three months from September to December 2020 and thereafter to 3% between January 1 and March 31, 2021.
Stamp duty is levied by the States and is charged while registering a document with the State Registrar, which is generally a transaction document agreed upon by two or more parties. In most of the cases, it is a fixed percentage of the agreed value as mentioned in the agreement. Additionally, 1% of the property value has to be paid as the registration fee. This significantly increases the total cost of the purchase and often acts as a deterrent for buyers in Mumbai, where the cost of properties is significantly high.
In this context, the phased reduction in stamp duty comes as a much-awaited measure from the Government of Maharashtra as the residential real estate market is reeling under pressure and this move could boost sales during the upcoming festive season. The residential real estate's volume and price growth are closely integrated with the GDP growth rate and given that India's GDP growth rate has been sagging and is likely to witness historic lows in FY21, it is imperative to initiate such measures to revive the economy. The reduced borrowing cost coupled with an almost negligible transaction cost and discounts offered by developers creates a great opportunity for serious buyers to make a purchase. In effect, timely nature of this move would hasten the decision-making process for the fence-sitters which would translate into faster turnaround time for the sector's recovery.
The rest of Maharashtra will also benefit from reduction in stamp duty. This is indeed a welcome move and will definitely benefit customers and foster demand creation apart from giving a stimulus to the allied industries, coupled with employment generation. However, it is highly unlikely that the temporary one-time reduction for a limited period will revive confidence in the real estate sector.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
