Reduction in Stamp Duty rates

Stamp duty in Maharashtra

In a move to bolster real estate sales, the Maharashtra government has announced a reduction in stamp duty rates of up to 2-3%.

As a new home buyer, this is an opinionated piece and somewhat of a warped perspective. However, I will try to be as objective as possible and hope to give enough citations to qualify my stance.

What is stamp duty?

Stamp duty is the additional charge that you will have to pay if you are buying a home anywhere in India. Depending on the state you are in, this stamp duty is payable at different stages in the home buying journey.

In Maharashtra, the stamp duty is to be paid upfront when you are doing the home down payment. In other states, such as Karnataka or Telangana (I am mentioning these because these are the two fastest growing states in terms of real estate) this stamp duty is to be paid on possession.

Why is this so important?

Well, most people end up saving for buying their first homes. Unless if you have access to super awesome payment plans and offers such as the home down payment assistance of HomeCapital, the majority of their savings end up being spent for buying that first home.

A stamp duty is usually levied on top of the agreement value. So in Maharashtra whenever you buy a home, not only will you be paying the usual 5% GST, you will also have to pay a 5% stamp duty as well. This pretty much puts the cost of the home at 110% of the agreement value. This is not even factoring in the cost of the broker, the registration fees, the home loan processing fees. If you add that up, the cost of the home is often 115% of the agreement value.

Stamp duty is 30% of this chunk. This chunk of expense is usually not visible to the average home buyer, until the point of purchase. That means you realize that you have incur additional expenses when you commit to buying a home.

Reducing this stamp duty from it’s 5% to 2-3%, the Maharashtra government has reduced the overheads of home buying.

So … what is the actual impact?

This is the question that a lot of us are asking. The actual impact if you are purchasing a home anywhere in Maharashtra, is a 60% reduction in stamp duty (that’s 2-3% of the agreement value). So, if you were to purchase a home worth 1Cr INR (roughly USD 140,000), then the net benefit you are getting is 2-3 Lakhs INR (roughly USD 3000-4000).

Would this impact real estate sales in the long term? No. In the larger scheme of things, this is but a drop in the ocean that’s not the painful part. In the smaller scheme of things, there might be some speculator transactions hoping to cash in on the “opportunity”.

Having just finished the worst quarter in the last 20 years, the sales are bound to rise. As the industry slowly recovers to its pre-COVID numbers, this small respite is a precisely that. It’s a small reprieve and pretty much nothing else. After 10 years, no one will remember this move, however, if this move were to solidify into the norm … then this would be interesting to see.

Conclusion

I think the government needs to look at the larger issues of access to affordable capital. Granting a small reprieve is not really an incentive to the industry.

The short term transaction upheavals would be an issue, and this hurts the same industry more than actually helping. However, most state governments have historically shown to be myopic and short sighted .. due to the nature of their terms and I cannot really fault them for this. So, like all things in the past 4 years, this shall also pass.

Why it is not a Happy Republic Day

Yesterday as the entire nation celebrated it’s 64th Republic day, as different brands and people were happily swinging the tri-colour in the air, I deliberately chose NOT to post a tri-coloured image on my blog wishing everyone a Happy Republic Day. It has been 64 years for the country and frankly speaking I am not celebrating. There is no reason left to celebrate.

Problems, problems

As a libertarian, it does not matter for me where I stay, as long as the establishment does not interfere with my personal life. I will continue paying taxes, and life will go on for me … but sometimes when I think about my children, I get scared. Not because of the hyper-competition in the Education sector or the difficulty a parent has to face to secure admission for his children, but because of the sheer rut in which this country is in and how it threatens to endanger their very lives.

Women in this country are mistreated and the media causes a furore … the case is discussed across the different media … and soon things go silent. A politician is caught red handed filling his pocket with the country’s money, a committee is set … media wags their tongues and soon afterwards, things go to normal. I also add to this problem, since I do not really do anything. What can I do? Vote?

India the four wheeled vehicle

A good friend described the country’s problem quite aptly, he said that India is like a four wheeled vehicle, the four wheels being media, bureaucracy, politicians and the corporates. The politician wheel does not want to go anywhere, it is happy with the quid pro quo status. It simply does the act of spinning, however its stuck firmly and refuses to budge. The media wheel is connected to the the politician wheel in some nightmarish mechanical method. The exact dynamics are not well documented, however the media wheel is dependant on the politician wheel, and is controlled by the politician wheel.

The bureaucracy wheel shows the largest potential … since its the largest. The problem is that it takes a lot to make it turn, and it is more or less stationary. When calamities shudder the country (the vehicle in our analogy), then this wheel comes into action. But until then, its fairly stationary and has a large inertia.

The corporate wheel (this is the wheel with which I identify the most) is a dynamo on its own. It’s running wild, its spinning faster and faster … in fact its currently the only reason why the vehicle is going anywhere. However, with constant lack of co-ordination from the other wheels, this wheel is beginning to wear down. The rubber has burned away and slowly the support it has given is depleting (the Tatas, Birlas are no longer Indian citizens … and many more in this list).

All in all, the entire nation is being taken for a ride and the automobile simply is not going fast enough.

How did we get here?

Arrogance, Ignorance and Incompetence. Not quite sure in which order, but definitely in epic proportions. However, there is no need to cry over spilt milk … what that done has been done.

The more pertinent question is how to get going? For the more patient there always is the Reform Thyself adage … which might come to fruition in a century of self control and discipline. The activists will always suggest change and overthrow and morchas, however that ain’t happening … we already know what happened with Mr. Hazare and his fast. The passivist will write a long blog (or article) on this issue and get on with their lives. That’s pretty much what I will be doing!

The only action that I might do which will drastically improve the nation in which me and my family live in is … to immigrate!