Will proposed 1% surcharge make real estate projects in Mumbai expensive?

1. Will proposed 1% surcharge make real estate projects in Mumbai expensive? As per real estate reports, properties in Mumbai might become more expensive due to the proposed levy of 1% surcharge. This surcharge will be imposed by the BMC (Brihanmumbai Municipal Corporation) in an attempt to recover GST loss in revenue. Even though the government has claimed that the GST (Goods and Service Tax) will be making things cheaper for the common man, the surcharge to be levied by the BMC might shatter the dreams of the common man to own a house in Mumbai. Real estate experts believe that the GST will have a negative impact on the real estate sector. This might derail the PM’s flagship programme that aims to provide housing to all by 2022. As per the GST bill, the nominal tax rate for various goods will reduce. However, the builders will be charging a huge amount from buyers because they’ll have to make up for the loss. GST will attract land leasing, renting of commercial properties as well as purchase of under construction housing projects. This move is most likely to face resistance from different homebuyers associations and developers who have been trying hard to sell off inventories. In Mumbai, sale of properties has been 25-30% down from last year. For the last 18 to 24 months, property market in the city has been facing extreme headwinds. Like other cities, demonetization also impacted the Mumbai property market because a sharp drop was seen in the sale of residential units. Developers believe that this new surcharge will dissuade buyers further. If reports are to be believed, Mumbai currently has more than 80 months of residential units’ inventory yet to be sold. According to the Knight Frank India report, there were approximately 1.55 Lac unsold units in Mumbai at the end of 2016 December. With piled up inventory already a big challenge for developers, the new surcharge will put additional burden on the buyers and discourage them from investing in real estate projects in Mumbai. 1% surcharge means that if you are buying a property worth 1 Crore, you will have to pay an additional 1 Lac on the property. Property buyers are already required to pay registration charges as well as stamp duty charges at the rate of 5% and 1%. So if you are buying a 500 sq. ft. apartment, you may have to shell around 60-65 Lacs INR. This rise in rates is making developers more concerned because sales will get impacted further due to rise in rates. Real estate experts are of view that on one hand the government wants housing to become affordable and on the other hand, it is increasing taxes and various other rates, including ready reckoners. Whenever a property transaction takes place, the government will become a party in profit automatically. This is because the home buyer pays 8-10% of the real estate project in Mumbai value to the government as taxes. If any new tax will be imposed on the buyer, it will result in discouragement in investment.