All of us always long to buy our dream home within our means. But today escalating property prices are making this primary need difficult to achieve. While there are banks and housing finance companies offering you loans to fulfil this dream, high borrowing cost (i.e. high interest rates) are acting as a deterrent. While many prospective buyers do hope that there would be some correction that could make housing affordable; rise in input costs (such as prices of land prices, cement, metals, and construction cost) is making it difficult for property developers to reduce prices and turnover their inventory. And it appears that going forward too, things could be worse for both – property developers as well as those planning to buy their dream home, especially in Mumbai the city of dreams or any other place in Maharashtra.

Recently, Maharashtra's revenue minister Mr Balasaheb Thorat said, that the revenue department has already given a proposal for an increase in Ready Reckoner (RR) rates as it is seen as a sure way of boosting the state's coffers. It is estimated that the Maharashtra Government could increase RR rates between 5% and 30%, depending on the size and location in Mumbai and the rest of Maharashtra.

It is noteworthy that RR rates are applicable as per the location of the property and are used to calculate taxes, including stamp duty and registration for property transactions. In 2011-12 the Maharashtra Government collected over Rs 14,000 crore as stamp duty from purchase and sale of property; it being 4.5% higher than the collection seen a year prior. There seems to be a policy of the state to generate at least 10% more revenues from stamp duty than what it had collected last year, and thus RR rates are likely to be increased.

Reactions of the real estate industry…
The realty developers are concerned over this proposal, as they expect that this could hurt their business since prospective buyers could be deterred from booking flats/premises. The real estate industry is already reeling under pressure from high input cost on one hand and elevated interest rate regime on the other. Thus recently, property developers had requested the state Government to slash RR rates that form the basis for stamp duty to avoid further burden on home buyers.

We are of the view that the proposal has come at a time when there is already structural sluggishness in the realty sector, due to unaffordable property prices and yet elevated interest rates. In the year 2013, it is unlikely that property prices in Mumbai and other major cities of Maharashtra would fall. This is because high prices of land, construction cost and potent demand would be supportive for prices to remain near the current levels. Moreover, robust activity in commercial property too would act as a support for the residential segment as well.

Hence in this backdrop where property prices are going to remain elevated, we think that the Maharashtra Government should refrain from increasing RR rates immediately.

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