The Reserve Bank of India’s latest notification to banks, to exclude stamp duty, registration and like charges while calculating the value of a property they intend to finance could lead to a further decline in home sales in the lower and medium segments, say developers and consultants.
The notification effectively means home buyers would have to arrange for more funds on their own, as banks will not lend for these charges any more. “Home loan borrowers are already stretched…Property prices are high, interest rates have peaked , stamp duty and registrations are high in many states and job markets are also not that great. I think buyers of homes in the Rs 20-70 lakh bracket will get hit further and sales in this segment could fall by a further five to 10 per cent,” said Sanjay Dutt, chief executive, Jones Lang LaSalle, a property consultant.
In December 2010, to check what is believed was excessive lending to real estate, RBI said commercial banks could not lend more than 80 per cent of the value of a property for loans above Rs 20 lakh and not for more than 90 per cent for loans below Rs 20 lakh. On Friday, it observed that some banks include loans, stamp duty and registration and documentation charges in the cost of a house property. “This overstates the realisable value of the property, as stamp duty, registration and other documentation charges are not realisable. Consequently, the margin stipulated gets diluted,” RBI said. Hence, banks should not include these charges in the cost of the housing property they finance, it said.
“RBI wants to curb speculation from real estate and want only genuine buyers in the property market,” said Dutt of JLL. In Maharashtra, stamp duty, registration and like levies constitute 10 per cent of the cost of a property. While stamp duty is five per cent of the value, registration charges are one per cent, value added tax another one per cent and service tax another 2.6 per cent.
“If home buyers have to pay more, there will be an impact on home sales,” said Paras Gundecha, president of the Maharashtra Chamber of Housing Industry. Already, property sales in most cities are on a decline due to stagnating incomes, high property prices and rising interest rates.
According to PropEquity, a real estate research and analytics company, absorption of homes in the National Capital Region came down from 55,372 units in 2010 to 25,623 units in 2011, a decline of 53 per cent. In the Mumbai Metropolitan Region, the aborption came down by 57 per cent in 2011, compared with 2010 figures, it said.
Developers are worried that the new regulations could create more negative sentiment in the market. “Too much of regulations always create negative sentiment among banks and borrowers,” said Lalit Kumar Jain, president, Confederation of Real Estate Developers Associa-tions of India.
However, Deepak Parekh, chairman of HDFC, the country's biggest mortgage lender, does not think the new notification will have any impact on home sales. “So far, individuals used to put in 20 per cent of own money. Now they have to bear the stamp duty and registration from own pockets. I think borrowers can do that without much issue,” he said.