News: Halving of development premiums in Mumbai to help revive stalled projects, avoid delays-14-12-2020
Synopsis
On Friday, the state government’s Urban Development department held a meeting with key real estate institutional investors and lenders including HDFC, Kotak Investment Advisors, HUDCO and ICICI Prudential among others to understand their view on reduction in premium charges by 50%.
MUMBAI: The proposed halving of premiums, levies and cess on real estate development in Mumbai, the country’s biggest property market, as recommended by the Deepak Parekh committee, is expected to revive stalled projects, avoid delays and rein in speculative price rise. On Friday, the state government’s Urban Development department held a meeting with key real estate institutional investors and lenders including HDFC, Kotak Investment Advisors, HUDCO and ICICI Prudential among others to understand their view on reduction in premium charges by 50%. “The move is expected to meet the urgent need for economic activity and generating employment. The premium, cess and levies impact the project’s viability. The industry is still grappling with liquidity inux in the backdrop of cumulative policy reforms and unprecedented Covid19 crisis which has been considered as a 'force majeure' situation by the government,” said Niranjan Hiranandani, President, NAREDCO.
He believes any reduction in premiums will help in easing cost pressure on projects making them viable to complete the projects and enhance the consumer condence. On an average, one-third of a realty project’s cost goes towards over 22 premiums collected in Mumbai. This is signicantly higher than in other comparable top cities like Bengaluru where there are 10 premiums and charges, ve in Delhi and just three in Hyderabad. “Hefty premiums in Mumbai ultimately result in increased working capital requirements for developers - in a market where lenders are already wary of lending to real estate players. Amidst the ongoing liquidity crunch, these premiums put an additional nancial strain on cash-starved developers, making it unviable for many to proceed with development,” said Anuj Puri, Chairman, Anarock Property Consultants. According to him, the disadvantage to homebuyers is that high premium charges lead to increased cost of a residential project, which is ultimately passed on to them.
Redevelopment, which is a critical factor in the land-starved city, also attracts multiple steep premiums, will also become more nancially viable. The added supply all around will help in keeping property prices in check. “The move is likely to help developers manage nances better. Rationalising these premiums will certainly boost Mumbai's property sector as reduced development costs to developers and therefore lower purchase cost to homebuyers can result in increased demand,” said S. Sriniwasan, Managing Director, Kotak Investment Advisors. A signicant reduction in these premiums will give a massive boost to developers' execution capacity, and this will result in more projects being developed and completed. On the recommendations of the Deepak Parekh committee, the Maharashtra state government is now mulling a reduction in the premiums on real estate projects under the Development Control and Promotion Regulations (DCPR). The proposed slash would be by as much as 50% for at least a year. Simultaneously, it has been proposed that the reduced premiums be paid at the time of granting the occupancy certicate, without any interest being levied. These premiums, levies and cesses are paid to the city's municipal corporation. While reduced premiums would mean that the state government rakes in less revenue, this would to some extent be compensated for by the increased number of project developments in the city. The state government is also expected to generate more stamp duty and registration revenue from increased housing sales. While there are several factors responsible for Mumbai's sky-high housing prices, the hefty premiums that developers have to pay to the state government are denitely among the prime reasons. If these premiums are slashed, the government will obviously have to ensure that the resulting cost benet is passed on to homebuyers. However, developers may not need much encouragement to do so as they are themselves eager to increase sales via improved aordability.
