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50 % Reduction In Premium ; 100 % Failure In Implementation

Real estate industry was facing lot of challenges since 2015-16. Until 2019 although many small announcements were made to revive the industry, nothing could change its fate. Year 2020 was expected as ray of hope for this industry but pandemic hit the country and lockdown was announced which put nail in the coffin of real estate industry’s death.

Central & State Govt tried to announce packages from their end but much was needed from BMC in Mumbai who was supposed to come with incentives.

Deepak Parekh committee gave its recommendations in July - Aug 2020 to revive the real estate industry. As per their research there were 22 types of various charges levied by BMC and these charges are approx two times higher than the value of the residential plot itself.

Hence some of their recommendations were as follows:

  1. BMC to reduce charges by 50%

  2. Developer to pay all charges in 2 instalments - 50% at the time of CC & 50% at the time of Occupation Certificate.

  3. To reduce the Land Under construction (LUC) Assessment tax.

Somewhere in September 2020, there were announcements by State Govt that they were considering the Deepak Parekh committee recommendations. Now the story begins as follows:

  1. In October 2020, BMC Commissioner warns of fall of revenue if builder were given benefit of 50% slash in premiums. Now who will explain BMC chief that if premiums remain higher then no builder will take up projects only. So by charging premiums higher and higher will not increase revenue but by increasing turnover will increase revenue. We can see this with classic example of record breaking stamp duty collections in month of November, December 2020. By reducing stamp duty by 60%, state Govt collected the highest stamp duty since its inception.

  1. After announcement by BMC chief in month of October, news came out in month of December that reductions in premium will be given till 31st December 2021 but start date was not announced and till date (3rd February) it has not been implemented.

  1. On 14th January 2021, UD ministry released announcing reduction in premiums but with some twist as follows:

a. LUC Assessment tax not to be reduced

b. As Congress Govt opposed, their recommendation of passing the benefit to buyer by paying Stamp Duty by the builder was incorporated.

c. Lastly premiums to be reduced but charges to be paid as per the land ready Reckoner rate of either 2019-2020 or 2020-2021 whichever is higher. This was due to letter written by Opposition Leader, Devendra Fadnavis that by reducing Ready Reckoner Rate of 2020-21, state Govt has purposely benefited a specific developer for land in Andheri.

Now looking at these all above incidents that how State Govt has twisted the reduction of premium by keeping all parties satisfied reminds me old story of father and son who bought a donkey from the market and were returning to their home which was in neighbouring village.

While walking back on their journey, father and son heard few people whispering that how foolish are these father-son, who are not sitting on the donkey. So first father sat on the donkey & as they went ahead, they heard from some other people that how selfish is the father that he is sitting and his young son is walking. So listening to their advice, son sat on the donkey, then listening to someone other both sat on donkey. Again listening to someone else they carried the donkey on their shoulder and atlast when they were crossing river through a bridge, the donkey tried to escape and fell down in the river.

Similarly this reduction of premium has also changed what it was recommended by Deepak Parekh Committee to revive the real estate industry but due to thoughts of State Govt ruling parties, BMC chief, Congress & Devendra Fadnavis the benefit of this premium reduction will not benefit to anyone in the end.

We work as PMC in redevelopment of old buildings and hence we come across various societies to make the Project Report and check its feasibility.

As per current announcement by UD, if we calculate the reductions, for eg if there is a project cost of Rs. 100 crore, then it’s sale revenue should be approx 130-135 crores for a developer to develop. In such project, the project cost has reduced by Rs. 4-5 crores depending on project to project, but at the same time developer will have to pay Rs. 6.5 to 6.75 crores by way of stamp duty to get the premium reduction benefit. So in nutshell developer will have to cut his profit by 2-2.5% and that too this is not yet implemented.

Hence all approval authorities like MCGM, MHADA, SRA have to issue their circulars for accepting reduction in premiums. Looking at current trend, we should not be surprised with few more twists when final circular is issued to match the climax of above story of father and son who bought donkey but could not make use of it.

JYF NAYAN DEDHIA ,Managing Director, Toughcons Nirman Pvt Ltd.

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