Mumbai developers agree to take a hit to beat slowdown

In a first-of-its-kind move, Mumbai’s real estate developers are likely to take a cut on their profit by paying the stamp duty charges of home buyers and also bear a part of the interest cost on loans.

In a meeting today, the Maharashtra Chamber of Housing and Industry (MCHI), a trade body for realtors, has advised its members to adopt these measures to kick-start sales which are showing signs of a sharp deceleration in growth.

The decision, if implemented, will mean savings of 5-7 per cent for the home buyers. Stamp duty, or the government levies paid for buying a home in Maharashtra, accounts for 5 per cent of the value of the property. The buyers also have to separately pay a maximum of Rs 30,000 as registration fees, or for registering their property with the authorities.

The decision follows a slump in the real estate market with both buyers and sellers waiting for the other to blink first.

In the recent past, some developers have been individually offering similar incentives. The members had assembled to take stock of the current market development and discuss the impact of the global financial crisis and the ongoing economic slowdown. Most of the developers present in the meeting agreed to the MCHI advisory.

The move is expected to bring uniformity in offering discounts and avoid undercutting by the developers.

When contacted, MCHI Vice President Sunil Mantri told Business Standard that “we have decided that developers should bear stamp duty and registration charges and also offer rebate on interest rates on loans.”

The decision will be announced in the forthcoming property exhibition to be held in Mumbai during the Dussera festival in early October. The reduction will be offered during the exhibition but developers are expected to continue it further. MCHI is also negotiating with housing finance companies to partly bear the interest rate on home loans, the spokesperson said.

Mantri, while explaining the rationale for asking its members to bear a part of the interest rate, said the idea stems from the understanding that inflationary pressures will ease two years, helping interest rates to soften.

Still, it is not clear if the decision will help developers to beat the slowdown or bring much required volumes. Some experts believe that developers may have to lower the prices of properties in the next few months, if sales do not pick up.

“The worst is not over yet and come November-December, builders will have to actually reduce prices of their properties,’’ said Pranay Vakil, Chairman, Knight Frank India (an international property consultant). He was of the view that “developers will witness an increase in volumes only if they drop prices.’’

According to him the days of the builders charging super- premium on their properties have vanished.

Still, Mantri was optimistic about the future. “In the coming days developers are expected to slow down construction activity which may happen in phases that will reduce supply,” he said.