Be prepared to pay more to buy a house in Mumbai. For, the Maharashtra government has increased the ready reckoner rates by 18-20 per cent in Mumbai and 5-30 per cent elsewhere in the state. This will lead to an increase in the base value of residential properties. Therefore, any escalation in the ready reckoner rates results in higher property prices and, as a result, in higher stamp duty and registration charges.
Ready reckoner rates are minimum prices set by the government, below which sales are not allowed. It is the average rate in any given area or a region.
Ready reckoner rates have risen for all properties including residential, commercial, shops and land. For instance, in one locality in Andheri (East), the ready reckoner rates have gone up from Rs 1.23 lakh to Rs 1.41 lakh (per sq mt), while in another locality it has gone up from Rs 78,700 to Rs 86,600 per sq mt, for residential flats. Hence, any rise in the rate indirectly means that the property prices in that region will increase.
While properties will get dearer, home buyers will have to shell out extra on series of other things. Along with stamp duty and registration, one will have to shell out more on value-added tax (VAT), service tax, and property tax, as all these are linked to the agreement value or ready reckoner rate, whichever is higher.
According to experts, all these expenses including duties and taxes constitute around 25 per cent of the property cost.
Stamp duty of five per cent and one per cent registration charges are payable on the ready reckoner rate or the agreement value, whichever is higher.
There are instances where the agreement value of a property could be less than the ready reckoner rate. For instance, if the rate is Rs 1 lakh and the agreement value is Rs 90,000, then the stamp duty and registration will be payable on Rs 1 lakh.
“However, in such a case under Section 50C, the developer and home buyer may be called in order to disclose their transaction information on how the property is being sold below the ready reckoner rate,” says Sunil Mantri, chairman, Mantri Developers.
If your area is laced with slums or you have a public toilet near your building, there are chances that your agreement value of the house is lower than the ready reckoner rate prevailing in that area. Additionally, if you are situated in a flood- or an earthquake-prone area, again your agreement value may dip.
For instance, the property rate of commercial areas in Parel and Andheri are lower than its ready reckoner rates. This also happens many a times because the ready reckoner rates largely keep increasing in a given area without considering the slug a particular market has undergone.
The Borivali region has witnessed a substantial increase in its ready reckoner rates. For instance, the market value of a flat with built up area of 750 sq ft from Borivali region would increase to Rs 1.80 crore from the present level of Rs 1.35 crore. This means that a home buyer who would have earlier paid stamp duty and registration on Rs 1.35 crore will now have to pay the duties on Rs 1.80 crore.
The revised or increased ready reckoner rates will also impact flat owners who are buying resale flats, as they have to bear the stamp-duty and registration charges.
However, a property-buyer buying a new flat all together will have to bear some additional costs such as VAT and service tax.
Based on the revised ready reckoner rates, property buyers will have to pay a higher VAT and service tax, too. One per cent VAT (on the agreement value) is payable on all under-construction flats. If your building is ready and flats are ready for possession, then this is not applicable to you.
Pujit Aggarwal, managing director and CEO of Orbit Corporation Ltd, says that home buyers who have made a down payment of at least 20-30 per cent and have received allotment letters won’t be affected as the value of the house would have already been determined by then. “Hence, this is applicable only to those home buyers who are yet to make any payment to buy their property,” says Aggarwal.
Similarly, a property buyer also has to pay a service tax of 2.67 per cent if the flat is under construction.
“Both the taxes are charged based on the agreement value, and since the property prices are set to increase one will definitely have to pay more depending on the location and sq. ft area,” adds Mantri.
To add to the misery, common areas such as terrace, corridors, shafts and staircase are now under the fungible floor-space index umbrella, for which developers will have to pay extra to build these. Developers will have to pay an average of 25-30 per cent of the ready reckoner rates.
“Due to this, the cost of construction will go up anywhere between 5 and 20 per cent depending on the project, designs and location,” says Bharat Dhuppar, chief marketing officer of Omkar Realtors & Developers.
For instance, in Mumbai suburbs, the construction cost has increased from Rs 16,000 to Rs 17,600 a sqmt, while it has gone to Rs 19,200 from Rs 17,500 a sq. mt in Mumbai city.
Real estate experts say this is a double whammy as along with the hike in ready reckoner rates, the cost of construction for developers has also increased. It is obvious that developers will recover such costs incurred by them from home buyers. This may lead to developers reducing the area per flat and also the passage area in the building to save costs.
Revised ready reckoner rates will also increase the amount of property tax a society collectively pays. Property tax was earlier payable on the ratable value of a flat whereas it’s now calculated on the property’s market/capital value, which is usually higher. But there could be some relief for home buyers. Ameet Hariani, managing partner of Mumbai-based Hariani & Company, cautions, “One should remember that even with the revised ready reckoner rates, property tax paid on residential flats and commercial properties cannot be more than double and triple from the tax paid in the year before that.”
When a property tax is applied, the value of the property is calculated depending on the building structure, number of elevators, number of floors and so on. “For instance, a smaller building would pay only 80 per cent of the tax compared to a taller building,” adds Hariani.
