Maharashtra Govt Cuts Construction Premiums By 50 Percent For Builders

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After a long delay of three months, the government of Maharashtra has finally authorized the proposal to decrease the construction premium by 50 percent. As the real estate industry is affected by COVID-19 and still searching for ways to escape from the coronavirus uncertainties, this move by the Maharashtra government comes as a blessing for both the real estate developers and homebuyers across the state.

The decrease in new construction in Mulund and building cost premium, compensated by the real estate developers to civic system in Maharashtra, is most likely set to boost the market of the real estate industry that is affected by the COVID-19 lockdown. However, the decrease of cost is available only for the real estate developers who would get hold of the weight of stamp duty payment that is at present carried by the potential homeowners. In short words, the real estate developers who opt for reduction must pay the complete charges of stamp duty at the time of property sales.

Matoshree Nisarg finds out that as per the new scheme, real estate developers need to pay a premium based on the RR or Ready Reckoner rates of both 2019 and 2020. These new changes will be valid until the end of the year that is 31st December 2021. According to various experts, this move will not only enhance new real estate launches across the state but also aid in project completions. However, an important point you need to keep in mind that that 50% construction cost reduction applies only to the premiums. Maharashtra government hasn’t approved a reduction for development cess and charges.

The President of NERDCO welcomed this move that stated, “The premium reduction for both the new and ongoing projects is a good move. This move will also boost the supply of new residential in Maharashtra. Additionally, developers will also face low construction costs. It is a move that will aid both the employment and economy of the state. The reduction in premium will help the projects to be completed quickly and thereby uplift the sentiments of the industry”.

The Chairman and Managing Director of Suntech Realty Ltd, Kamal Khetan also added, “The decision by Maharashtra government will revive the residential realty. It will also enhance the demand for residential spaces across the state”.

What is Construction Premium

Construction and building premium billed by the Federal Government agencies on FSI (Floor Space Index), which defines the acceptable limit of construction on a plot. In short words, FSI is known as the ratio of the total built-up area to the whole plot area. The calculation of charges and premiums is based on the prevalent RR rates.

Since a massive portion of construction cost is constituted by premium, the burden is ultimately received by the consumers disguised as high real estate prices. In an expensive city like Mumbai, construction levies and premiums contain over 30% of the total cost of the project.

For those who are unaware, the move is based on the report of a state-appointed committee, Deepak Parekh, who is the chairman of HDFC bank. Keeping the under-construction projects in Mulund East in mind during the coronavirus lockdown, the committee had previously proposed the premium reduction to the state.

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