Thursday, March 19, 2020

Stamp Duty Reduction; Band-Aid on the Wound!







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“When the truth hurts, create a better truth.”...Freequill.

Once again I am surrendered to this guy’s wisdom & this time it’s about real estate & though Freequill anonymous writer who prefers to remain faceless & whose most quotes are about nature & life yet they are applicable to most of the things around us, even when the subject is as boring as real estate & stamp duty! And by the time I started this sharing the news of reduction of stamp duty by 1 % (wow full 1 % !) has been forgotten by the dark clouds named Corona Effect surrounding the already darkened faces of most businessmen (read as Industries) around us. Needless to say real estate wasn’t going through a good patch in recent (read as last 4 years) yet like in Marathi there is phrase, “Budatyala kadicha aadhar” means, for a person who is drowning even a small piece of wood feels like a great help! Same way the 1% reduction of stamp duty news came as a silver lining to the darkness named recession. Actually I never feel this is recession to real estate but then that’s different topic, let’s focus on the impact of this stamp duty news on real estate in Pune.

Yes, Pune as in this Smart City we were paying the price of being Smart because in Pune the stamp duty is nearly 7% of the transaction plus registration charges! I never understand this registration charges thing as when you are already collecting stamp duty why you have to ask for registration charges separately on the deal, isn’t it over burden? It’s like making “tip” compulsory under the sweet tag of service charges in hotels which leaves sour taste in the mouth after a nice meal but any way that’s the way govt is! Well, now those lucky souls who doesn’t know what a stamp duty is (yes, there are many such) & even for those who knows what is stamp duty but doesn’t know its purpose of the way it’s been charged or calculation of it, I am not a expert but with twenty five & odd years in real estate you come to know about few things little  better than others & stamp duty is like a package deal with any deal in real estate, so I started knowing a bit about the same. On any immovable property deal (read as sale or purchase) govt charges certain amount in proportion of the value of the deal & this can be paid either by the buyer or the seller (mostly the buyer ends up paying it) & then only the deal is considered as complete i.e. registered in govt revenue records & the said immovable property can be transferred on the name of the buyer from the name of the seller! Simple, isn’t it but no, it’s not that simple as this proportionate (%) keeps changing according to the cities & Pune is highest in the State i.e. 7% of the deal value! Mean if you buy a flat worth Rs.1 crore then you have to pay stamp duty of Rs 7.0 lac on this deal plus Rs 35 k as registration charges! And then this stamp duty is directly related to the ready reckoner value of the said property also, means if as per the govt book’s (ready reckoner rates) the property cost is more than your deal the you have to pay stamp duty on the higher value even if you are buying it at lower value! And there is more for different types of deals, this happens in Joint Venture, the working of stamp duty can differ such as construction cost, market cost of the property etc & all this does affect on the finish product i.e. the home or say flat! As all these expenses are being loaded finally on the flat salable rate only!

So if you have understood the stamp duty concept then let me tell you stamp duty also contributes in major way in State Govt’s entire revenue, nearly 30% & so is a important aspect for the govt as through this revenue the govt can carry infrastructure as well welfare works for the citizens’ of the State. And that’s why when a govt reduces the stamp duty, even by mere 1% it is an important step as first the State is already short of funds & is debt ridden & second this means the govt seriously (hope so) understands real estate needs a booster & third the govt thinks for the end user of the real estate i.e. the home buyer. Because if the average price of a flat in Pune is considered as Rs 50 lac then strait way there is saving of Rs 50,000.00 for every average flat transaction for the buyer & indeed in present time it is big incentive! As at present the factual scene in real-estate is there are only genuine end users i.e. home buyers who are buying a home to live in it & they need to do that with the help of home loans for which registered document is a must which means stamp duty payment. And this end user of real estate is mostly salaried class & for them every single rupee counts as earning is fixed so is loan amount & so is budget to buy the home!

As well even for investors, here many will ask are there any investors left in real estate (rather with share market down by Corona effect, are there any investors left at all, is what I will ask to such people)? My answer is, there are investors in the real estate yet but they don’t know how & where & that’s the job of the builders & their teams (read as marketing) to make such investors enlighten about changed scene in real estate investment! And when I say enlighten about real estate I don’t mean by showing some rosy or false dreams but still real estate is one of the best investment  if done wisely (so is any investment of course) where your returns are sure, provided you know why you are buying the property & for how much time-span! Means is it just appreciation or rental or a make-shift arrangement for stay which later you will sale! Because in compare to any other commodity its real estate only which won’t lose its glitter just like the gold, when you will be selling it!
In all these cases still a saving of Rs 50 k (average for 2 bhk) in the form of saving in stamp duty is a bonus & as I said it’s a big step by State govt to boost up real estate sentiments. As in present times even the State govt is hard pressed of revenue generation & any reduction in its own revenue sure is a good sign that the govt understands need of supporting real estate & this doesn’t mean to support builders but the real needy home buyers!

Now after thanks-giving to the State govt about their stamp duty reduction yet few questions remains as with due respect this 1% reduction in stamp duty is like applying band-aid (adhesive medicine tape) when the wound needs to be operated with nearly hundreds of stitches to close it & heal permanently! As it’s not just stamp duty but the ready reckoner rates of the properties which have been worked on the basis of boom wave of real estate rates i.e. nearly four years back. And agreed last one or two years those rates have not been increased while the property rates have slumped back to four years in many places. So, high time to revise ready reckoner rates to the rational level i.e. in tune with market level. Because our “Mai Baap Sarkar” i.e. govt is expert in the game of giving a gift by one hand & taking the gift back by another hand! So if the ready reckoner rate increases which ideally must be reduced then this 1% reduction gift in stamp duty will be of no use! More than that, let’s rationally work out the entire taxation (burden) on real estate’s end product i.e. a home as agreed there will be two tyre system of tax by Central govt & State govt but in case of real estate there are many tyres. Right from the latest ESR Ses (Environment Social Responsibility) to local body’s (PMC/PCMC) & then within that road premium to fire premiums & then there is MSEDCL (MSEB) & property tax & the list is endless like Hanunamji’s Puchh (a Hindi phrase)! In the end, nearly six hundred to seven hundred rupees per sq ft is loaded on flat’s selling rate with all these govt taxes (income tax seperete) & which was ok till few years back but in today’s scene if a flat purchaser negotiates with tooth & nail for flat’s price (discount) then why not govt also takes part in that discount instead becoming party to the real estate only for profits; is what my question to all the policy makers of the real estate! This reduction of stamp duty step must be considered 9read as taken) on all fronts of charges by govt agencies, isn’t it?

And then in lieu of all these govt money (taxes, stamp duty, premiums etc), what the builder or the flat holder is getting in return, is also a big question. Because barring few areas in our Smart Pune city where home rates are beyond the common man, most of the suburbs lacks basic civic infrastructure like water, roads & drainage is a fact. Its high time for real estate that, why then we have to pay so much to the govt per sq ft of what we build or what we sale or what we buy; is the question not just builders but the home buyers must ask there only lies the affordability for all the segment in real estate. Or else be happy with the band-aid therapy on your wound & wait till it heals naturally & pray to the god for not requiring to cut your organ because of gangrene named un-affordability!

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Sanjay Deshpande 
Sanjeevani Dev.

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