Development Charge Hike to Impact Realty Market in Mumbai & Pune
27 Nov 2015
The sun shining over the horizon, clouds dotted with birds, a river flowing by quietly, and a pretty garden abutting a small house. This is how most children are primed to imagine their dream home. In today's complex world of real estate, which offers choices that are mind-boggling, let's look at the forces that are driving the markets so that you can take an informed decision about buying a house.
The market goes through phases of growth as well as depression. For instance, at present, there are more houses ready for sale than there is demand for. If we look at the difficulties developers are facing in selling homes, the Indian market is in a depression, though still not at the lowest point of the trough. Even property brokerages are saying that the market is bad.
Buying a house in Mumbai and Pune might just get more expensive if the state government has its way. The recent announcement to double the development charges in the state has sent builders and investors in a tizzy. The real estate sector has already been hit hard by the constant increase in construction costs in the past. Any further increase in costs is expected to push the already tumbling market further down. Development charge is the fee that developers have to pay the authorities for any new construction, alteration or redevelopment. The municipal corporations use this fund for development of civic amenities in the city. Higher rates will bring in revenue only when people buy property, which, at present, does not seem to be an attractive prospect considering the soaring prices and stagnating demand.
Real Estate Developers in Pune protest that they already pay too many taxes and charges for permission from different departments. Any increase in construction costs will inevitably be passed on to the buyers and raise the prices even more. With genuine home buyers unable to afford properties, realty market cannot be expected to survive this phase. As buyers have adopted a cautious wait-and-watch approach, unsold inventory has been rising in both the cities.
Adding to the problem, the state cabinet has also approved a proposal to increase the stamp duty in Maharashtra by one per cent. Although this move is aimed at balancing the fall in revenue from sale of properties, experts fear that it will work against its goal. Higher stamp duty will mean increased property cost that will put off buyers and send the market into greater distress.
At a time when the government must do everything in its capacity to gain cooperation from developers and investors in order to push the ‘Housing for All’ scheme, the move to hike charges might be a miscalculated decision. Real estate experts fear that this might have a negative impact on the already badly hit real estate market and will in no way help government’s goal of improving revenue generation.