Ready Reckoner Rate Hike: Impact on MMR residential market
The Maharashtra state government has increased the ready reckoner rate by up to 15 per cent on an average, with some areas witnessing a hike of up to 40 per cent. The hike, effective from January 1, could make property in MMR even more expensive and has dashed the hopes of home buyers waiting for a fall in property prices. Developers are also disappointed with the state government’s decision as this hike will dampen buyer sentiment and make it difficult to sell off an inflated inventory.
What is ready reckoner rate?
Ready reckoner rates are the prices of residential property, land or commercial property for a given area. These are revised annually by the state government to reflect market trends. Ready reckoner is used to calculate the market value of properties for paying stamp duty and registration charges. Ready reckoner rates are used as reference points for various land deals, acquisitions and real estate-related issues. Property buyers have to pay a stamp duty of 5 per cent on the market rate or ready reckoner rate, whichever is higher.
Areas affected by hike
Residential properties in many areas will be dearer due to the increase in ready reckoner rates. The price of properties in South Mumbai Worli and areas near Bandra-Kurla Complex are likely to go up by 30-40 per cent. Rates in suburbs such as Goregaon, Borivali, Malad, Chembur, Ghatkopar and Vikhroli have also been increased. Thane, Navi Mumbai and Vasai-Virar areas will also be hit by the state’s new ready reckoner rates as they have pushed property prices in these areas by almost 20 per cent.
Consumers to feel the pinch
An increase in the ready reckoner rate will bring down the affordability of homes and has a direct impact on consumers. According to experts, about 25 per cent of the real estate cost to buyers comprises of various taxes such as excise, VAT, service tax, stamp duty, Octroi and local corporation taxes. An increase in ready reckoner rates will affect the home buyers as many charges like fungible FSI, fees payable during the approval of plans will go up, hence increasing the cost of the project. These increased costs will be ultimately passed on to the buyer.
Developers disappointed
Real estate developers in Mumbai are unhappy with the government’s move to hike ready reckoner rates and feel the timing could not be worse. The residential market continues to be sluggish and this hike will adversely affect the buyer sentiment. “There has been a revival in the real estate sector over the last few months, and now this hike will certainly hamper that positive sentiment. The slow sales are aggravated by the Reserve Bank of India’s hawkish stance on rates, making borrowing expensive. Any increase in ready reckoner rates will have to be passed on to home buyers. This will lead to a decrease in demand for housing,” says Lalit Kumar Jain, Chairman, CREDAI.
Impact on Residential Market
Experts feel that a hike in the ready reckoner rates will directly impact sales velocity and may pull down sales further in MMR. “With the increase in ready reckoner rates, Mumbai’s property market has inched one degree higher on the ‘unaffordability’ index.
While this is worrisome, the process of ready reckoner rates catching up with market rates is an inevitable market dynamic,” says Om Ahuja, CEO-Residential Services, Jones Lang LaSalle India.
This hike could also have a positive spin-off as it aims to bridge the gap between stated agreement rates and the market rate. In Mumbai, there is a huge disparity between the market rates at which transactions are taxed and the rates at which developers sell properties. The logic of hiking the ready reckoner rate is that it will reduce the amount of black money involved in each transaction, once the ready reckoner rates come closer to parity with the market rate.
