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Maharashtra okays 50% cut in construction premiums

The move will propel sector growth in 2021

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Maharashtra okays 50% cut in construction premiums

Maharashtra government’s bold decision to cut construction premiums by 50% will propel sector growth in 2021, and the industry has welcomed the move. As per the Deepak Parekh committee, as on date, there are as many as 22 premiums collected in Mumbai under various heads – including FSI, staircases, lift well, lobbies, etc.

Anuj Puri, Chairman – ANAROCK Property Consultants.
Anuj Puri, Chairman – ANAROCK Property Consultants.

The disadvantage to homebuyers is that high premium charges lead to a residential project’s increased cost, ultimately passed on to them, said Anuj Puri, Chairman – ANAROCK Property Consultants.

Hefty premiums in Mumbai ultimately result in increased working capital requirements for developers – in a market where lenders are already wary of lending to real estate players. Amidst the ongoing liquidity crunch, these premiums put an additional financial strain on cash-starved developers, making it unviable for many to proceed with development.
Dr Niranjan Hiranandani, President NAREDCO
Dr Niranjan Hiranandani, President NAREDCO

Dr Niranjan Hiranandani, President NAREDCO, said: It is a great bolstering move made by the state government by sealing approval to reduce premiums by 50 per cent under the new DCPR rule 2034 across the board for on-going and new projects upto Dec 31, 2021.

This move will go a long way in expediting the project completion and the industry will witness new launches in the market. The industry applauds this booster dose making many projects viable and we shall adhere to the rules laid down in lieu of availing these benefits. Also, the reduction in premiums for new launches will help the development at the lesser input cost and over a period of time there is possibility of lower price for new inventories that shall come into the market.

Ashok Mohanani, President, Naredco Maharashtra

Ashok Mohanani, President, Naredco Maharashtra
Ashok Mohanani, President, Naredco Maharashtra
After the stamp duty cut, Naredco Maharashtra welcomes yet another blockbuster decision of the Maharashtra Government to reduce the construction premium by 50 per cent. It will give a big respite to the developers, as the cost of the premium and approval cost, contribute 35 to 38 per cent of the project cost, whereby the project cost will come down substantially. Mumbai alone attracts around 22 premiums which are higher than other top metro cities. Higher premiums put an additional financial burden on developers leading to higher costs for the homebuyers.

Projects that wish to avail the benefit of concession will have to pay the full stamp duty on the sale of flats, whereby the consumers will get the direct benefit of this concession, granted by the state government. The decision will also bring the relatively higher construction premium at par with other states, and the lending institutions will find the project funding more viable. It will result in more funding into the state’s real estate sector.

Srinivasan Gopalan, chairman, Unitern Advisors

Kudos to Maharashtra government to have given impetus yet again to the real estate industry by reducing premiums by 50 per cent thereby saving cash flows for the developer who may choose to pass on the same to the home buyer. I anticipate home buyers to take advantage of the same and buy their dream home. Great time for NRIs to invest. This is the right time to buy properties in Mumbai, thereby taking advantage of both the premium reduction and the benefit of lower stamp duty and registration fees. Home loans are at their all-time low as even 6.8 per cent.

Abhishek Jain, chief operating officer, Satellite Developers Private Limited
Abhishek Jain, chief operating officer, Satellite Developers Private Limited

Abhishek Jain, chief operating officer, Satellite Developers Private Limited

After being hit by the pandemic, the real estate sector has seen a solid recovery on the back of stamp duty reduction and a good festive season. This move of reduction in premiums by 50 per cent will help rationalise input costs for the developers and go a long way in expediting project completion, thereby keeping price escalation in control. The industry will also witness new launches in the market, attracting investments from institutions. All in all, a good move that will sustain the real estate industry’s growth in the coming months.

 

Mr. Bhushan Nemlekar Director Sumit Woods Limited
Mr. Bhushan Nemlekar Director Sumit Woods Limited

Bhushan Nemlekar, director, Sumit Woods Limited

After the stamp duty cut, the Maharashtra Government’s decision to cut premiums by 50 per cent is a masterstroke. This will give a much-needed impetus to the real estate industry in the State. We will see a very positive response from the developers and the stakeholders. I feel that even the State Government and the Corporation’s revenue will increase because of this decision. This will also ensure a positive momentum going into the New Year after an effective last quarter for the industry on the back of lower interest rates, reduced stamp duty and festive offers by developers.

 

 

Shishir Baijal, chairman and managing director, Knight Frank India
Shishir Baijal, chairman and managing director, Knight Frank India

Shishir Baijal, chairman and managing director, Knight Frank India

The announcement by the Maharashtra state government is a landmark in boosting the real estate sector. After the Parekh Committee’s recommendations, the cut of 50 per cent on premiums on real estate project will help the supply side stabilise make development in the state more feasible. New supply has been restrictive for many reasons including cost of raw material (land being raw material to real estate development) in the last many years, especially in large volume markets like Mumbai and Pune.

 

This move will help rationalise input costs for the developers and help supply momentum, thereby keeping price escalation in control whilst striving towards the demand-supply equilibrium in the market. However, since both the demand and supply-side measures are short term, it may prove beneficial to jump-start the real estate sector giving it an orbital velocity for next-level growth.

Kaushal Agarwal, chairman, The Guardians Real Estate Advisory

Mr. Kaushal Agarwal - Chairman The Guardians Real Estate Advisory
Mr Kaushal Agarwal – Chairman The Guardians Real Estate Advisory

It’s the much asked for and required icing on the cake for the real estate sector, especially in Maharashtra. After the steep, temporary reduction in stamp duty charges, the 50 per cent reduction in premium payments until December 2021 will immensely benefit the supply side. It will also help developers pass on further benefits to homebuyers, invigorating demand for real estate projects under construction.

 

This move is likely to propel developers to offer extended payment holidays and give buyers lucrative price proposals in projects where the inventory has been selling slowly. While the pandemic and subsequent lockdowns made developers focus on completing existing projects and largely postpone launching new ones, this move of halving the different kinds of premiums and levies is going to make developers contemplate going back to launching new projects.

 

Tanuj Shori, Founder and CEO of Square Yards
Tanuj Shori, Founder and CEO of Square Yards

Tanuj Shori, Founder and CEO of Square Yards

The reduction in construction premium by 50 per cent till December 2021 by the Maharashtra Government will provide much-needed propulsion to India’s most expensive real estate market, battered by the pandemic, a liquidity crunch and shaky business sentiments. This welcome move will enhance housing projects’ development at lesser input costs, reduce working capital requirements for developers, ease the financial strain on stressed realtors, expedite project completion and renew developer interest in new project launches.

 

Besides softening new inventories’ prices, the rationalising of construction premiums will also make projects in prime locations viable via reducing approval costs and boost redevelopment projects. Since realtors will pass on the reduced cost benefits to homebuyers, it will translate into exponential sales, with stamp duty cuts, low-interest rates and attractive payment schemes sweetening deals further. Increased project development will also help the state government cover-up revenue losses through higher stamp duty and registration revenue collections.

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