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Double whammy for homebuyers in Maharashtra; homes get costlier

Double whammy for homebuyers in Maharashtra; homes get costlier

Double whammy for homebuyers in Maharashtra; homes get costlier
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By Jescilia Karayamparambil  Apr 1, 2022 12:27:04 PM IST (Published)

The Maharashtra government has raised the Ready Reckoner (RR) rates for the municipal corporation areas by an average of 8.8% and there has been an increase in the input cost and construction cost.

Homebuyers may have to shell out more in the near term as input cost and construction cost surge. The rise in steel, cement and other raw materials costs is causing a dent in the pocket of real estate players, which is why they are mulling a price hike.

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But in the case of homebuyers in Maharashtra, it will be a double whammy as the government raised the Ready Reckoner (RR) rates for the municipal corporation areas by an average of 8.8 percent (excluding Mumbai- 2.34 percent) for the financial year 2022-23. This revision is effective from April 1.
Samantak Das, Chief Economist and Head Research and REIS, India, JLL, said, "Though the RR rates have been increased after a gap of four years, it is going to impact the homebuyers as it will lead to higher taxes. The increase in RR rates has come at a time when the stamp duty waiver is over and the state has proposed 1 percent Metro cess. The sharp rise in overall taxes is going to impact the homebuyers' sentiments and residential sales."
The average RR rates have been increased by 9.48 percent for Thane, Panvel - 9.24 percent, Navi-Mumbai - 8.90 percent, Mira Bhayandar - 8.30 percent, and Kalyan-Dombivali - 7.42 percent.
RR rates have been raised by 12.15 percent for Nashik, Pune - 6.12 percent, and Pimpri-Chinchwad - 12.36 percent. Das added, "Homebuyers in these regions would have to pay higher taxes which is going to impact residential sales."
Impact of rising input and other costs
According to Colliers Report, over the last year, developers' average cost of construction has increased by 10-12 percent. This is due to higher input costs due to supply-side constraints. "This surge in cost comes at a time when developers have been under pressure due to higher debt and liquidity concerns over the last few years."
The average cost of construction in the residential category was Rs 2,300 in March 2022 as against Rs 2,060 per sq ft in March 2021. In the industrial category, it increased to Rs 2,100 sq ft in March 2022, from Rs 1,900 sq ft, the report stated. "With wholesale price inflation (WPI) and material cost, both seeing a double-digit rise, the cost of construction can rise by a further 8-9 percent by December 2022," said Ramesh Nair, CEO, India & Managing Director, Market Development, Asia, Colliers.
There is an ongoing uncertainty in the market owing to the ongoing conflict between Russia and Ukraine, which has pushed input costs higher. Sandeep Runwal, President, NAREDCO Maharashtra and Managing Director, Runwal Group, said, "The steel prices have increased by more than 60-100 percent in the last year, prices of cement have gone up by 40-70 percent in different regions making the projects unviable."
Pritam Chivukula, Co-Founder & Director, Tridhaatu Realty, and Treasurer, CREDAI MCHI said, "Going forward, if the prices don't drop, the developers will have no option but to pass the additional cost to the consumers as it is happening in all other industries."
Meanwhile, some developers expect around a 20 percent rise in property prices. Kaushal Agarwal, Chairman of The Guardians Real Estate Advisory, said, "If the current trend continues in the steel, cement, and other key allied industries, then there are chances that the property prices are likely to shoot up 15-20 percent in the next six months."
The COVID impact on the real estate had just started to fade and demand has gained momentum. Thus, developers are cautious about any upward pricing over a fear that it will dampen demand. But with developers increasingly feeling the pinch of rising input costs, they will have to reconsider the present pricing. "Developers are facing high costs but are being cautious to increase the price for end-users as it might impact overall demand," said Argenio Antao, Chief Operating Officer, Colliers India.
Meanwhile, Agarwal added that real estate prices have not gone up in the last couple of years despite the sector being suppressed due to several disruptions.
Seeking intervention
Antao added some intervention from the government in the form of lower import duty can provide some relief to developers, especially in segments with low margins. Residential projects in the affordable and mid-income segments carry relatively lower margins and are price sensitive.
NAREDCO has even approached the Ministry of Housing & Urban Affairs to look into the rising prices of raw materials. Runwal added, "We are also approaching the RERA authorities to consider this as a Force Majeure and to allow the escalation in the selling prices of the flats. We are requesting the intervention of the Housing Ministry to reduce the prices."
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