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21 January, 2021
While the luxury segment of real estate flourished greatly in Mumbai, it has been undergoing tough times in the recent years. In addition to the constantly stockpiling inventory of unsold properties, the high premiums are making it increasingly difficult for the developers. On an average, the developers in Mumbai end up paying premiums of equal value as a third of the total project cost. A developer in Bandra is known to have needed to pay a premium of INR 6 crore for a property priced at INR 5 crore.
Recently, the Maharashtra Government has decided to slash the premium charges on the real estate projects, under the DCPA. This would be a 50% reduction and would remain effective at least for a year. This would provide the developers with a much-needed respite and facilitate the revival of the real estate sector.
The premium charges in Mumbai are generally much higher than the other major cities in India. The builders in Hyderabad need to pay ten premiums while those in Delhi and Hyderabad are charged five and three premium charges respectively. In Mumbai, however, the developers end up paying up to 22 different premiums for their projects.
Due to the ongoing crisis for the past few years where the sales are falling, most of the lenders are hesitant to finance real estate projects. The high premiums require high capital from the developers and considering the difficulties in obtaining the loans, it is indeed a tough situation for them. The cash-starved developers in Mumbai have been finding it increasingly difficult to come up with new projects.
The high premiums in Mumbai are not just a problem for the developers, but for the homebuyers as well. High premiums result in higher costs of production and hence a significant rise in property prices. With homes becoming increasingly expensive, it has become quite difficult to buy a home and this is one of the reasons behind the decline in property sales in Mumbai. At such a time, rationalisation of the premiums would evidently be a smart move. Alongside making the situation easier for developers, it would also result in increased sales.
The premium charges are paid to the municipal corporation and hence, a reduction in premiums would reduce the revenue for the government. However, the increased property sales would again result in more registrations and stamp duties, along with facilitating real estate development in the city. Evidently, this is a win-win situation for the builders, property buyers and the government alike. The reduction of premiums is certainly going to bear positive results in the short and long term alike.