Maharashtra stamp-duty hike: What it means for realty companies.

In a recent development, cash strapped Maharashtra government proposed to hike stamp duty on leave-license to 0.1% on market value or 1% of the average annual rent or deposit paid, whichever is higher, for residential properties. For commercial properties, the duty proposed is 0.4% for lease agreements over 60 months.

This is a whopping 160 times hike from the previous fixed amount of Rs 25,000 for residential and Rs 50,000 for commercial properties for 60 months.

Fortunes of real estate companies in India’s financial capital could take a turn for the worse if the Maharashtra government accepts the proposal to hike stamp duty on leave-licenses.

The government’s aim behind this move is to mobilize over Rs 1,000 crore and restore Mumbai to its previous glory.

Most realtors had stomached the 2% service tax hike (from 10% to 12%) announced in Budget 2012-13 and instead opted to see the silver lining , which is the introduction of external commercial borrowings (ECBs) in the low-cost housing segment and the reduction of withholding tax on ECB interest from 20% to 5%.

However, if the hike comes into effect, it will increase prices of leave-and-licence properties, both residential and commercial, by a huge margin which in turn will deal a sharp blow to an already-sluggish Mumbai real estate demand. India Bulls, Oberoi, HDIL, Phoenix Mills, Bombay Dyeing and Raymond are among the realty companies that will bear the brunt of the proposed stamp-duty hike.

 

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