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The pros and cons of stamp duty reduction

RELIEF IN SIGHT: Opinion is divided on how the recent stamp duty reduction for flats will impact the real estate sector.

The State Assembly has approved changes in the Kerala Finance Bill 2007, bringing down stamp duty for registration of flats. According to reports in the media, the Bill takes away stamp duty on flats costing up to Rs. five lakh.

The cost of works contract will be set off for calculation of stamp duty.

Flats costing more than Rs. five lakh will attract stamp duty of 10 per cent in Corporation areas, 9 per cent in Municipal areas and 6.5 per cent in Panchayat areas. Opinion is divided on the effect this will have on real estate business in the State which is at an unprecedented high.

The realty business picked up momentum over the last couple of years. Prices have been steadily moving up in the real estate market even as the building industry is straddled with a lot of problems.

Will the Government move help the industry? Kerala Builders’ Forum feels that the reduction will not have much effect on the industry. It is like raising the rates five times and then bringing it down once. Despite the announcement made by Finance Minister T. M. Thomas Isaac, the picture is not clear, says Mathen Chackola, Chairman of the Builders’ Forum.

What exactly will be the final rate with the registration fee was not yet clear, he said. But felt that since the media reports said 10 per cent for Corporation areas, it would mean 10 per cent plus the registration fee that was still way above rates existing in other States of the country.

Mr. Chackola said that the rates in Kerala are higher by four to five per cent compared to other States considering that the rates are mostly around eight per cent, including Value Added Tax (VAT). These higher rates along with the recent cutting down of Floor Area Ratio will impact the price of projects that are yet to be launched.

The National Housing Policy favoured vertical growth in cities. Recently, Mumbai and Bangalore opted for raising FAR, said Mr. Chackola. He also pointed to increasing demand for flats from local people. This is in contrast with a few years ago when demand for flats came mostly from non-resident Indians. Mr. Chackola connected the recent spurt in property sales to the fact that people anticipated higher prices for projects that are waiting to be launched.

The reduction in stamp duty for flats was not called for, says M. S. Mohanan, President of the Ernakulam district unit of All Kerala Document Writers and Scribes’ Association (AKDW&SA).

He says that by reducing stamp duty on flats, Government has just helped big businesses and not the common man. If it was beneficial to common people it would have been a welcome step, he said.

The removal of stamp duty on flats costing up to Rs. five lakh will not have much effect as the Government does not stand to lose revenue, said a senior document writer here. The removal of stamp duty and its reduction should be read along with the valuation of property that is coming into effect.

Proper valuation will also see that the Government gets its due share of revenue, added the document writer who also pointed to a certain slow down in the registration with some sections waiting to see what effect the reduction will have.

However, the document writer ruled out any windfall for those waiting because the reduction will be effected along with the Government notifying value for property across the State.

Over the years, Government has been addressing problems related to property registration; fixing of land value too is expected to come through although its implementation will involve solving specific problems.

Mr. Mohanan said that if the Government reduced the duty and fee involved it would be able to increase its revenue because more and more registrations will come through without under-valuation.

He pointed to significant increase in Government revenue when at one point stamp duty was reduced.

The Government should take the cue from this and take steps which will go a long way in making property transactions more transparent.

Mr. Chackola has welcomed the Government move to fix prices for property and to notify it.

This will be a major step for the State. Government valuation of land has been carried out in other states such as Tamil Nadu, said Mr. Chackola.

He also pointed out some practical problems that would be involved in Government fixing land prices.

For example, property under a single survey number might carry different value depending on factors like access. If access is good or if a portion of the property has road frontage, it will attract a higher price.

But these problems can be overcome as the rules are worked out by addressing specific problems that crop up along the way.

Mr. Chackola also expects reduction in stamp duty to be implemented along with fixing of value as announced by the Government.

On yet another aspect of Government failure to fix land value, Mr. Mohanan said that this has paved the way for malpractices.

If the Government is able to fix property value, it will root out these malpractices in property registration.

He also felt that the process of fixing land value has been sabotaged and that if it came into effect it would help make the process of property registration smoother, eliminating scope for malpractices.

Fixing of land value will also help get rid of the cumbersome process of a person being served notice on a particular registered property being undervalued.

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