If you are planning to buy a home, now is the time to do so, because by April 2022, stamp duty rates are slated to go up and you will have to shell out more.
All indications are that buying and registering a home before April 2022 could result in significant savings for buyers. This is because real estate prices are likely to rise given the rising input costs. Also, the government may hike the stamp duty on registration from 5% to 6% from April 1, 2022.
Let’s talk about stamp duty first.
On August 26, 2020, the Maharashtra government decided to reduce stamp duty on house registration from 5% to 2%. This was a concession in view of the pandemic-induced slump. This relaxation lasted till December 31, 2020.
From January 1, 2021, till March 31, 2021, the government decided to reduce the concession. During this period the applicable stamp duty was 3%. From March 31, 2021, it was reinstated at 5%. However, because many agreements signed between January 1, 2021, and March 31, 2021, couldn’t be registered because of the second Covid wave, the Maharashtra government allowed such deals to be registered till June 30, 2021, with the reduced stamp duty rate of 3%.
The results of these concessions were spectacular. State Revenue Minister Balasahed Thorat, himself was quoted in the media as saying, “After the first Covid wave we had taken a decision for six months to reduce the stamp duty. This decision had positive results. Many transactions got registered. It helped people who bought homes. The decision helped developers as well.”
Despite the concession, he had pointed out, revenues during the period had gone up. Between September-December 2020, Mr Thorat told the media, “The registration of documents rose by 4.11 lakh, or 48.73%, giving the state exchequer higher revenue of ₹ 367.73 crores, a rise of 3.97 per cent.”
By July 2021, stamp duty concessions led to property registrations jumping by 270%, with around 1.13 lakh transactions recorded in Greater Mumbai. In the same period the previous year, when stamp duty had been 5%, there were just 42,500 properties registered.
By July 2021, Knight Frank India reported that of the 67% year-on-year sales in the first six months of this year, two cities constituted nearly half of the total sales amongst key markets. Mumbai and Pune posted 45% of the total sales – a fact that experts attributed to the government’s “significant” decision to cut stamp duty. Shishir Baijal, chairman and managing director of Knight Frank India had said when the report was launched, “Fundamentally, there is demand. What we are doing is trying to stimulate that pent-up demand. Today, we feel all the things are in place — requirements, low-interest rates, price correction and affordability. There is no reason why such a stimulus shouldn’t work.”
Recent media reports however indicate that from April 1, 2022, with the start of the new financial year, the Maharashtra government is likely to raise the stamp duty applicable on registration of property documents to 6%.
For property buyers, this move could act as a double whammy, as according to media reports, rising costs of inputs is likely to force developers to raise prices by 5-15% in the near term.
As Hindu Business Line notes, in its January 15, 2022, edition, “Construction costs are north-bound, up 15% or so, with key building materials like steel, cement and labour charges witnessing inflationary pressures. The report further states that since January – March 2020, steel prices are up 45-47% to around ₹62,300 / MT; copper is up at 70-75% to ₹745,000 / MT; aluminium prices have seen a 55-50% increase to ₹203,385 / MT; PVC items have seen an increase of 80-90% to ₹ 165,000 / MT; while fuel/diesel cost is up over 43% to ₹94 / litre.” Meanwhile, labour costs have also gone up substantially because of Covid-related shortages and protocols.
The impact of both these factors could result in a significantly higher outgo while buying a new property. Here is an illustration:
- Say, a property costs Rs. 1 crore today.
- In a few months’ time, inputs costs could raise the price of the property by, say, 10%.
- The stamp duty applicable (till March 31, 2022) is 5%.
- Post-April 2022, a buyer is likely to pay a higher stamp duty of 6% on the escalated price.
The difference between the two transactions is as follows:
- Final Current Transaction Price: Rs. 1 crore + Rs. 5 lakh stamp duty = Rs. 1.05 crore
- Final Likely Transaction Price (After April 2022): Rs. 1.10 crore + Rs. 6.6 lakh stamp duty, totalling up to Rs. 1.166 crore, a difference of more than Rs. 11 lakh!
Buying and registering the deal before April 2022, could therefore result in significant savings!