Maharashtra stamp duty cut will do little in boosting demand: Ind-Ra

The proposed stamp duty reduction by Maharashtra state government will do little to boost demand in the sluggish residential real estate market, India Ratings and Research (Ind-Ra) has said.

The sector has been facing a slowdown for the past few years which has been exacerbated by COVID-19 led nationwide lockdown. The two key residential real estate markets of Maharashtra -- Mumbai Metropolitan Region (MMR) and Pune may react differently to this measure, given the structural difference between these two markets.

The state government has proposed to reduce stamp duty by three per cent for the period September 1 to December 31 and thereafter to two per cent between January 1 to March 31 next year from the present five per cent across Maharashtra.

Ind-Ra said the residential real estate's volume and price growth are closely integrated with the GDP growth rate. The primary reason for such close inter-linkages is that incomes have to be not only accumulated to buy a house but also sustained to create long-term assets such as real estate.

Hence, economic prospects for a longer duration are of utmost importance while committing to such an asset class. Given that India's GDP growth rate has been sagging and is likely to witness historic lows in FY21, it is highly unlikely that temporary measures such as one-time reduction in stamp duty for a limited period will revive confidence in the real estate markets.

Income slowdown amid levered household balance sheets may only intensify the slowdown in the residential real estate in the near term, said Ind-Ra.

The MMR and Pune have seen a decline in weighted average prices (across ticket sizes) at a compound annual growth rate of three per cent and 0.5 per cent respectively while all India prices increased about one per cent during FY16 to FY20. The declines have been sharper in the high ticket category.

So the anticipation of a further decline in prices (by anything more than three per cent until December and two per cent thereafter till March 2021) may offset the benefits offered by a temporary reduction in stamp duty.

The MMR particularly has almost 75 per cent of its inventory in ticket size upwards of Rs 50 lakh and may thus require a little more than stamp duty reduction to encourage prospective buyers.

On the other hand, said Ind-Ra, Pune has equal split between Rs 50 lakh and upwards and Rs 50 lakh and below ticket size. Thus lower ticket sizes may still see some uptick, given that the capital values in that segment have remained more or less stable.