Maharashtra's halving realty premiums can cut property prices by 7% in Mumbai, boost demand: Report

The Maharashtra government's recent move to reduce all premiums related to the realty sector by 50 per cent will lower property prices by 7 per cent in the financial capital, giving a significant boost to the industry, a report said on Friday.

The 'all-in' prices in the rest of the state are likely to decline by a more modest 2.8 per cent following the move, and the impact on demand is likely to be correspondingly lower, India Ratings and Research said.

The real estate sector has been facing challenging times for the last few years with problems of excess inventory pile-up and the pandemic only aggravated the issues.

In response, Maharashtra lowered the duties on property transactions and followed it up by halving the premiums this week.

The agency said the 50 per cent reduction in premiums would reduce the cost of flats by roughly Rs 750 per square feet in Mumbai and Rs 150 per sq ft in the rest of the state.

It costs around Rs 8,500 per square feet of the saleable area (including land cost) to construct a flat in the Mumbai Metropolitan Region (MMR), while the average price is Rs 10,640.

The Rs 750 reduction in costs will be around 8.8 per cent of the cost of flat construction in MMR, while Rs 150 per sq ft would be 3.2 per cent of the cost of construction of flats in Pune, it said.

Premiums in MMR tend to be of the order of Rs 1,500 per square feet (Rs 1,000-2,000 per sq ft) while the same typically stand at Rs 300 per sq ft in the rest of Maharashtra, it said.

Buyers bullish on the long-term real estate price outlook and having a stable source of income may choose to bring forward their housing demand, the agency said, adding the move may significantly boost the demand for housing in 2021.

However, it is difficult to ascertain the exact quantum of increase, it said, adding that the analysis assumes competitive pressure will force builders to pass on the cost cuts to buyers.

The impact on the already launched projects is somewhat less clear as at least a part of the premium would have been already paid and there is no proposal to refund the premiums already paid, it said.

Even existing projects are likely to benefit from the premiums to be paid and may be able to see a commensurate reduction in prices and a resulting increase in demand, it noted.