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Impact of stamp duty cuts is very real and happy for Indian real estate

Sales rose and prices remained stable, shooting the sector with optimism

Budget 2019: Real estate sector's expectations from Modi 2.0 [File] Skyscrapers under construction in South Mumbai | Amey Mansabdar

Despite being pounded by the second wave of COVID-19, India’s residential real estate has held its ground through 2021 so far, according to a report released on Thursday by consultants Frank Knight India. Sales rose and prices remained stable, shooting the sector with optimism for the coming months. 

And they have a new mantra to chant for that success — stamp duty cuts.

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, and experts attribute the reason, beyond all other factors, to one simple, yet significant government move. The decision to cut stamp duty.

Aiming to boost housing sales and nearly 260 industries associated with the real estate sector, Maharashtra’s Uddhav Thackeray government had cut stamp duty from 5% of the agreement value down to just 2% from September till the end of the year. Energised by the results, the government later further extended the sop, this time at a rate of 3%.

“We are in a much better position this year than last year,” analyses Shishir Baijal, chairman and managing director of Knight Frank India after launching the report. “One market did extremely well—demand was phenomenal in Mumbai and Pune. And we see similar stimulants in Kolkata and Bengaluru.”

This is because both West Bengal and Karnataka have now jumped on to the bandwagon of cutting stamp duty to kickstart property sales that had bit the dust after the pandemic and lockdown. Chief minister B.S. Yediyurappa while proposing the state budget last month spoke of cutting stamp duty from 5% to 3% for flats valued between 35 lakh and 45 lakh rupees, while Mamata Banerjee went the whole hog in its state budget last fortnight, offering a stamp duty rebate of 2% for registration of deeds and slashing of circle rates by 10%

This has perked up the sector. Of course, it remains to be seen whether the Mumbai-Pune ‘boom’ will replicate elsewhere, as stamp duty cuts to properties worth less than 45 lakh rupees would leave out a good chunk of the inventory available in a pricey market like Bengaluru, for instance. “Glad West Bengal did not put a restriction on the price category,” quipped a Knight Frank India official.

“Fundamentally, there is demand,” argues Baijal. “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,” he added.

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