In a Shocking Move, Maharashtra Government Hikes Ready Reckoner Rates with Immediate Effect under the Guise of Rationalisation

While property prices are on a decline and rental rates are crashing, the Maharashtra government has announced an increase in ready reckoner (RR) rates to extract higher taxes under the guise of rationalisation.

Although RR rates for Mumbai have been reduced marginally by 0.6%, the average increase for the rest of the state, including MMR, is 1.74%.

The government has called the hike marginal, compared to the increase of as much as 10% in previous years, while also adding that the revision has come after a gap of two years and five months. But RR rates for determining taxes are supposed to be based on property prices, which have not increased in this period.

This announcement by inspector general of registration and controller of stamps comes close on the heels of the limited period stamp duty cut, which was announced on 26th August.

Maharashtra government had announced that stamp duty on sale deed documents would be slashed by 3% from 1st September to 31st December 2020, and by 2% from 1st January 2021 to 31st March 2021.

The real estate sector has seen a significant slump in this year for residential sales. New launches have remained subdued on the back of bleak economic environment, the COVID pandemic and muted consumer sentiment.

The move to cut stamp duty had earlier been welcomed by the real estate sector. Home-buyers and developers had hailed it as an attractive incentive and analysts had commented that this cut in stamp duty would also help the government generate more revenue as registrations were expected to increase.

Mr Deshmukh revealed that daily transactions in the state, which used to be around 6,000 to 7,000, has increased to 10,000 after reduction in stamp duty charges.

However, this RR rate increase is a dampener and several people from the sector have expressed their disappointment. Industry experts said this hike would further adversely affect the realty sector, which is already in a battered state.

Noted real estate lawyer, Anil Harish (Partner DM Harish & Co Advocates) expressed his shock and told Moneylife "It is totally inappropriate to increase the RR values, and particularly at this time! The real estate sector-all the developers, the workers and the customers need support at this most difficult time and not this kind of step, which is also inconsistent with the support that the government has given by reducing the rate."

A real estate developer who does not want to be quoted, told Moneylife, "This hike in RR rates at this time is unrealistic. At present, property prices are already down by about 30% and there are no buyers in this Covid crisis. In addition, there is unsold inventory and the trend is of a further fall in property prices. In this scenario, this hike in RR rates is unwarranted."

RR rates—also known as circle rates or guidance values – are the minimum values set by a state government below which a property cannot be registered. Each area within a city has its own RR rate on which stamp duty is calculated. To align circle rates with the actual market prices, most state governments previously regularly reviewed and increased the RR rates in cities either annually or every two years. However, market values increased only marginally in the same period.  This had led to RR rates being higher than prevailing market rates in many areas.  Property prices have fallen in Mumbai, but the RR rates are much higher. There is as much as a 20% gap between the RR rate and the market rates in some areas.

In the past two years, RR rates for property in Maharashtra were kept unchanged. Due to the slump in real estate sector, the same rates from FY17-18 were continued in FY18-19 and FY19-20.

At the end of 2019, however, the exercise to revise the RR rates was carried out.

The new revised rates were to become applicable from 1 April 2020.  In March-end, Maharashtra government had announced that due to the ongoing COVID pandemic crisis and the lock-down, the same rates would be continued for the current financial year.

The state government, however, asked the inspector general of registration and controller of stamps to finalise the annual RR rate chart in June 2020.

The exercise was completed and this hike in RR rates has now been announced.

The state government has reduced the RR rates in Mumbai, but increased them in other municipal corporations, in MMR and the rest of the state. As per the announcement, the RR rates have been increased by average 2.81% in rural areas, which covers 42,167 villages; 1.29% in 368 municipal council areas and 1.02% in 27 municipal corporation areas.

Mumbai city and Mumbai suburbs are the only areas in the state where the RR rates have been cut. In Thane, the rate is up by 0.36%, 0.25% in Mira Bhayandar, 0.76% in Kalyan-Dombivali, 0.99 %in Navi Mumbai, 0.97% in Ulhasnagar, and 0.12% in Bhiwandi-Nizampur. Nandurbar (around 4%), Panvel (5.3%) and Pimpri Chinchwad (3.41%) saw the highest hikes.

The hike in RR rates in Raigad, Ratnagiri and Sindhudurg is 3%, 2.69% and 2.48%, respectively.

In Vidarbha region, RR rates have registered the highest increase—by an average 1.99% in Washim district. In Bhandara district, hike in RR rates is the lowest—0.05%.

As per the official chart, Nagpur district has registered an average increase of 0.60%. This average increase includes 1.13% hike in rural areas, 0.4% rise in growth area, 0.77% in municipal council/nagar panchayat areas.  In case of Nagpur city, the increase is 0.1% as per the official announcement.

This move to hike in RR rates, amid the COVID-19 pandemic and adverse impact on economy in general while the real estate sector is seeing arguably the biggest slump, has shocked the entire real estate sector in the state.

There are specific income-tax (I-T) provisions according to which a developer cannot sell at a price point lower than the RR rate, as it translates into a taxation burden for both, buyer and seller. In this situation, the expectation was that the state government would reduce the RR rates instead, it has chosen to increase them.

On the one hand, the state government reduced the stamp duty in the last week of August, while, on the other hand, it has now increased RR rates.

The official government announcement has justified the hike by saying that the RR rates had not been revised since 2017-18. Further, it added, that the rates have been increased considering extension of the jurisdiction of municipal corporation/council, establishment of new municipal council/nagar panchayat, new growth areas, approval to development plan, change in user class of land, etc. Across the state, an increase of 2.81% has been effected in RR rates. This includes hike of 1.89% in growth area, 1.29% in municipal council/nagar panchayat areas, and 1.02% in municipal corporation area.

The 0.6% cut for Mumbai is negligible, and from a home-buyer's point of view, it is too little to make any substantial impact on the apartment prices.

There are reports that Mr Deshmukh, inspector general, stamps and registrations, has indicated that the rates could be further revised downwards by 2% for Mumbai, if the government accepts the Deepak Parekh Committee's recommendations.