Time for Govt to reduce RR rates: Housing industry

Income Tax benefits for homebuyers
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Housing industry is union in its demand that government should now reduce ready reckoner rates. Even deals are being registered at below RR rates in several localities.

By Varun Singh

The housing industry has many demands from the government. But one of the most to point out is to reduce ready reckoner rates (RR rates).

Why is it important, in Ram Raheja, Director, S Raheja Realty’s own words 40 per cent of the project cost is reliant on ready reckoner rates.

“The costs for every project depends on the ready reckoner rates. All our premiums, deficiency, FSI etc. are calculated based on RR rates; approximately 40 per cent of the project cost is reliant on this,” he said.

Of late many industrials and ministers have asked developers to reduce the prices if they want to survive the downturn.

Also Read: Reduce prices to survive or suffer: Goyal to builders

On this, Anuj Puri of Anarock Property Consultants says, “It’s all very well to exhort developers to cut their prices to push sales, but this is still a very incomplete narrative presenting only half of the story.”

Puri further adds, “To overcome issues like inventory pile-up and cost overruns, many players have already topped off major discounts with additional offers like refundable booking amounts, waived statutory fees, cashback schemes, easy payment structuring and assorted freebies.”

Raheja presenting the builders side adds, “People keep asking developers to reduce prices and sell. But the only way that is possible is if the government does the same. This in turn will allow the cost for our projects to reduce. A reduction in the ready reckoner rates is a much awaited step.”

The unchanged ready reckoner rates had upset the housing industry earlier. Developers from the housing industry were expecting a reduction in the rates, though that didn’t happen.

Manju Yagnik, Vice Chairperson, Nahar Group and Vice President NAREDCO (Maharashtra) had then said, “The industry is reeling under slowdown followed by lockdown due to Covid19 expected reduction in RR rates which are already higher. The reduction in RR rates would have provided some respite to home buyers and developers both.”

Adv Vinod Sampat, says that RR rates should be reduced by minimum 20 per cent, but our bureaucrats are more bothered for their targets.

Sampat says, “If government feels RR rates are realistic they should be willing to acquire the property at the same price as mentioned in agreement. All over the world recession has set due to COVID but our stamp duty authorities have not reduced the ready reckoner rates. One quarter is about to get over.”

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Anarock suggests that government should reduce ready reckoner and stamp duty rates as this would give immediate and significant monetary relief to homebuyers, particularly those seeking affordable properties.

A reduction in RR rates combined with other incentives, can help convert fence-sitters in both affordable and mid segments to take the plunge.

According to Sampat, this (no reduction) has severely affected the real estate industry. The approach of government authorities of not giving timely financial support to real estate sector in all probabilities can result in depression amongst some realtors specifically those who have huge liabilities.

Sampat also says that all calculations of realtors have gone for a toss due to COVID scenario with literally no help from government.

Developers from the housing industry also say that at many places the RR rates have surpassed the actual market rates and hence do need to be reduced.

Rajesh Prajapati of Prajapati Group says, “At many places across Mumbai as well as other locations in Maharashtra, The RR rates have surpassed the actual market rates of land as well as flats / shops / offices. This causes great hardship for both buyers and sellers as both are taxed under IT Act sec43CA if the transaction value of lower than 10% of RR Value.”

Even Prajapati points out that, most premiums in mumbai and other ULBs are based on RR values which become unrealistically high.

“Also due to low demand in this pandemic situation, developers may be forced to transact a few deals at less than market values. Hence there is a strong case for RR value to be brought down by the government of Maharashtra,” opined Prajapati.

Rohit Poddar, MD, Poddar Housing and Development Ltd. says, that the answer (reduction of RR Rates) is that it depends on the asset class of real estate. For the luxury residential and commercial sector in the Top 10 Metros of India, the answer is absolutely yes. For the low cost and affordable housing sector, the answer is no because prices are not going to reduce any further.

Poddar’s reason for sectoral wise reduction in RR rates is that there has been a tendency for the state government to increase RR rates on an annual basis as a matter of practise

He finally says, “However prices for the end project have not risen in proportion so in many instances the RR rates is higher than the actual market price of the product and registering substantially below RR rates is a compliance issue with Income tax and the developer / seller would have to get the documents adjudicated every time. Instead of this which is contrary to Ease of Doing Business, RR rates has to be reduced based on prevalent market conditions and rates”

Also Read: COVID discount, distress sale new trend in real estate

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