Homes prices may fall in Mumbai, India's costliest housing market, after the local administration slashed levies by as much as 50% until December 2021.
Maharashtra state cut various levies on construction projects on the recommendation of a government-appointed committee headed by Deepak Parekh, chairman of Housing Development Finance Corp. The move will likely bring down development costs for most builders and result in lower home prices for buyers in addition to boosting stocks of realty developers.
This will "help development at lesser input cost and, over a period of time, there is a possibility of lower price for new inventories that shall come into the market," Niranjan Hiranandani, president, National Real Estate Development Council, said in a statement. "This reduction in premiums will help in quick turnaround of projects and uplifting industry sentiments."
The latest move may fuel a market that's starting to recover in the past few months after a prolonged slump due to reasons ranging from unfavorable government policies to a shadow bank crisis. With the pandemic putting millions out of work, a resurgence in house sales and corresponding increase in building could boost output everywhere from banks to builders to consumer goods factories. Construction creates the most jobs in India each year.
Due to scarcity and high cost of land in Mumbai, developers prefer to build vertically, often more than what the ratio of floor space to total plot area allows. Developers pay a variety of charges for being able to build more, including premiums for more floors and deficient open space. According to the Parekh committee, Mumbai had 22 different levies, the highest among Indian cities.
The move follows the state government cutting local tax on home purchases by around 60% last year, leading to an 80% jump in Mumbai home sales in October-December. Record low interest rates will probably continue to spur housing demand in India, similar to countries like the U.S., U.K. and South Korea.
Shares of Godrej Properties Ltd. rose as much as 4.5% as of 10:30 a.m. in Mumbai on Thursday, Oberoi Realty Ltd. gained 6.6%, Indiabulls Real Estate Ltd 11% and Sunteck Realty Ltd. 5.9%. The S&P BSE Realty Index advanced 2.2% acompared with 0.2% for the benchmark gauge.
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