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Housing in Mumbai set to get more expensive as MCGM proposes 1% surcharge

MCGM proposal to levy a 1% surcharge on property deals, both in the primary as well as the secondary markets, would make houses further more expensive in Mumbai.

By: Shubhra Tandon | Published: April 1, 2017 6:27 AM

MCGM proposal

The Municipal Corporation of Greater Mumbai’s (MCGM) proposal to levy a 1% surcharge on property deals, both in the primary as well as the secondary markets, would make houses further more expensive in Mumbai. While the proposal needs approval from the state government, real estate developers and industry experts have raised a red flag on the move. The country’s most expensive real estate market — Mumbai — has been facing extreme headwinds in the last 18-24 months. Further, like the rest of the country, Mumbai also saw a sharp drop in sale of residential units post demonetisation. The piling up of unsold units is already a big challenge for the developers. Mumbai Metropolitan Region (MMR) recorded 1.55 lakh unsold units at the end of December 2016, according to a Knight Frank India report.

The proposed move by MCGM comes in the backdrop of octroi ceasing to exist as a revenue stream with the imposition of GST. Octroi collections is one of the major sources of income for the municipal corporation to run the city.

According to a report from ratings agency CARE Ratings, up to February 2017, Octroi collections were of the order of `6,547 crore. With this revenue stream going away, MCGM has requested the state government to allow it to collect profession tax, so far collected by the state government, and also impose a surcharge of 1% of the value of an immovable property in the case of sale or gift.

As for the property tax, it has seen robust growth in the last two years. In the financial year 2016-17, income from property tax is estimated to have gone up by over 11% to `5,400 crore. The growth is due to stabilisation of new capital value based system, quick disposal of disputed matters, issuance of bills in time and new properties assessed during the year. However, with this fresh levy now, the fear is that there would be a further burden on the buyers which will impact sentiments.

Ashutosh Limaye, head of research at JLL India, said that it is a concern as the 1% surcharge will mean paying an additional `1 lakh on a property of say `1 crore. A buyer is already required to pay stamp duty charges at the rate of 5% and 1% or `30,000, whichever is less, as the registration charges. In all, home buyers pay 8-10% of the apartment value in taxes. Developers are concerned that the sales will be impacted further by the move.

Manju Yagnik, vice-president of real estate developers association NAREDCO and vice-chairperson, Nahar Group said, “On one hand, the government wants prices to come down and provide housing for all, while on the other, it is increasing taxes, levies and various rates including ready reckoners. As such, there are limited deals taking place and the proposed surcharge will dissuade homebuyers.”

Rohit Poddar, managing director, Poddar Housing, also said that the real estate market has been facing serious headwinds and this is suitably reflected in the pile up of unsold inventory. “Customers are complaining on the prevalent prices and would like homes to be more affordable. In this scenario, any move which potentially increases the price burden on the customer is not prudent.” However, the municipal body has also been affected in its revenue stream with the ongoing slowdown.

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