Get ready to pay a lot more to rent in Mumbai

The Maharashtra government, in an attempt to increase its income, has proposed a hike in stamp duty on rentals of residential and commercial properties.

FP Staff March 26, 2012 11:00:08 IST
Get ready to pay a lot more to rent in Mumbai

A Maharashtra government proposal to raise funds by increasing stamp duty on rent agreements on properties, may deal a body blow to residents living on rent and commercial establishments in Mumbai.

The Maharashtra government which is struggling with a high fiscal deficit is planning to train its sights on the lucrative property market of the country's financial capital, and according to a report in the Times of Indiait could increase the stamp duty for rent agreements by 16,000 percent.

The government is reportedly proposing to impose a 0.1 stamp duty on the market value of residential properties or 1 percent of the premium and average rent paid for up to three years.

Get ready to pay a lot more to rent in Mumbai

The property market in Mumbai is already struggling with slow growth. Reuters

Presently the maximum stamp duty payable for commercial premises is Rs 50,000 for 60 months and Rs 25,000 for 60 months for residential premises.

For leases between three and six years the state government is planning to seek 0.4 percent of the market value as stamp duty.

The government hopes to mobilise around Rs 1,000 crore annually from this move.

However, in a city like Mumbai where residential rentals are among the highest in the country, the proposal is unlikely to be met with much approval. Most residents living on rent are made to foot the cost of the stamp duty in addition to the rent.

Rents for commerical properties in Mumbai are already among the highest in the world, and builders fear that this new measure could further slow an already struggling property market.

Mumbai-based realty companies felt the pinch even before the proposal was passed, with their stocks taking a beating in the markets on Monday morning. Builders are already reportedly coming up with innovative schemes to sell commercial property in the city.

In an attempt to attract buyers of smaller commercial properties, builders are reportedly allowing buyers to pay between 30 to 40 percent of the property's cost initially and pay the rest over a period of five years, sometimes without charging interest.

"For more than a year now the real estate market has been in a bad condition. Sales are not happening and banks too are not giving loans to developers," Anand Gupta of the Builders Association of India was quoted as saying in DNA.

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Recalling that Chavan promised developers in a joint meeting a few months ago that the government would give top priority to affordable and mass housing, Gundecha pointed out that any hike in the duty would dampen buyer-sentiment.