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Real estate demand may not drastically improve with proposed stamp duty cut; this may work instead

While the government of Maharashtra has proposed a stamp duty reduction in a bid to push real estate demand, the same may not prove fruitful.
While the government of Maharashtra has proposed a stamp duty reduction in a bid to push real estate demand, the same may not prove fruitful. “It is highly unlikely that temporary measures such as one-time reduction in stamp duty for a limited period will revive confidence in the real estate markets,” a report by Indian Ratings and Research said last week. In fact, income slowdown, amid depleting households’ balance sheets may only intensify the slowdown in the residential real estate in the near term. The sector, which has been facing the heat of slowdown for some years now, finds itself even deeper in trouble now that the coronavirus has led to a nation-wide lockdown and has further hit the economy.

In fact, what may actually prove to be useful for the sector is a sustained recovery in GDP. Stating that the residential real estate’s volume and price growth are closely integrated with the GDP growth rate, the report added that for creating long-term assets such as real estate, consumers do not merely need accumulated wealth but also sustained income to create such assets. Confidence in economic prospects for a longer duration hence takes center stage while investing in such an asset class. India’s GDP growth has taken a downturn and is likely to witness historic lows in FY21 as is expected in GDP data to be released later on Monday.
“The two key residential real estate markets of Maharashtra – Mumbai Metropolitan Region (MMR) and Pune may react differently to this measure, given the structural difference between these two markets,” the report said. Moreover, it is likely that the expected decline in capital values may offset stamp duty reduction benefits. The state government had earlier proposed to reduce stamp duty by 3% for the period 1st September to 31st December 2020, and thereafter to 2% between 1st January to 31st March 2021, from the present 5%, across Maharashtra.

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