Increased Stamp Duty Rates, Will Hurt Housing Demand..!

by Mr. Ramesh Nair, JLL India

The increase in Ready Reckoner rates will definitely have an impact on housing sales as this increases stamp duty. This will hold true for both primary & secondary sales.

Over the last 6 months, the market for residential property in Mumbai had started showing signs of revival after an 18 month period of sluggishness beginning in the 4th quarter of 2010. The hiked Ready Reckoner rates could dampen that revival, given the fact that house buyers are already burdened with service tax, sales tax, VAT (Value Added Tax), taxes and duties on construction materials, etc.

Negatively Affect Land Sales..!

Moreover, land owners will cite the increased Ready Reckoner values to demand higher prices for their plots of land. This will negatively affect land sales, as there is already a pronounced lack of liquidity in the sector. Developers will also feel the heat by virtue of having to pay higher capital gains tax.

In many locations, it has been noticed that the Ready Reckoner rates are not in line with market rates.

Mr. Ramesh Nair, JLL India 

In 2008-09, the Government had provided relief to house buyers & developers / promoters by not increasing the Ready Reckoner rates. Given the current uncertainties in the real estate market, the Government should definitely reconsider its stand on this issue.

Nearly 25 per cent of the real estate cost to buyers comprises of various taxes such as excise, VAT, service tax, stamp duty, octroi & local corporation taxes. Reduction of stamp duty & taxes brings down overall costs & increases the affordability of houses.

Any increase in duty and taxes gets passed on to the end user, i.e., the buyer, and will reduce demand & therefore sales.

This is contrary to the Government’s avowed aim to encourage & support affordable and mass housing. Reduced duties will encourage more buyers to register house purchase transactions. Instances of understatement of sale proceeds would also come down with a reduction in stamp duty.

State Govt. Revenues Rise..!

There is sufficient historic evidence to the fact that state govt. revenues rise when stamp duty reduces, as this stimulates housing demand.

Furthermore, there has been a country wide debate on the safety of citizens over the past 2 weeks.

In the light of this, the Government should take all steps to encourage home ownership. Research clearly indicates that neighbourhoods which have higher incidences of home ownership are safer, with citizens being more involved in the community. This provides more stability to families and promotes personal responsibility.

About the Author..!

Mr. Ramesh Nair is Managing Director (West) at  Jones Lang LaSalle India

Mr. Ramesh Nair - Managing Director - West India

Ph: + 91 22 6620 7575

Email: ramesh.nair@ap.jll.com

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