Mumbai skyline
It will be the new builds that will benefit most from the reduction in construction related costs. Image Credit: Twitter

Mumbai: Homes prices may fall in Mumbai, India's costliest housing market, after the local administration slashed levies by as much as 50 per cent until December 2021.

Maharashtra state cut various levies on construction projects on the recommendation of a government-appointed committee headed by Deepak Parekh, chairman of Housing Development Finance Corp. (HDFC). The move will likely bring down development costs for most builders and result in lower home prices for buyers in addition to boosting stocks of realty developers.

Read More

New homes to benefit

This will "help development at lesser input cost and, over a period of time, there is a possibility of lower price for new inventories that shall come into the market," Niranjan Hiranandani, president, National Real Estate Development Council, said. "This reduction in premiums will help in quick turnaround of projects and uplifting industry sentiments."

The latest move may fuel a market that's starting to recover in the past few months after a prolonged slump due to reasons ranging from unfavorable government policies to a shadow bank crisis. With the pandemic putting millions out of work, a resurgence in house sales and corresponding increase in building could boost output everywhere from banks to builders to consumer goods factories. Construction creates the most jobs in India each year.


Number of construction-related government levies in Mumbai and the highest in India

Riddled with levies

Due to scarcity and high cost of land in Mumbai, developers prefer to build vertically, often more than what the ratio of floor space to total plot area allows. Developers pay a variety of charges for being able to build more, including premiums for more floors and deficient open space. According to the Parekh committee, Mumbai had 22 different levies - the highest among Indian cities.

The move follows the state government cutting local tax on home purchases by around 60 per cent last year, leading to an 80 per cent jump in Mumbai home sales in October-December. The S&P BSE Realty Index has surged almost 50 per cent since the decision.