MUMBAI: If you choose to buy a flat in an old building today, you won’t be able to avail of the full 30% depreciation in the property‘s value. The up to 20% hike in ready reckoner (RR) rates for properties this year has lowered the depreciation benefit for flats in 20-year-old buildings to merely 2% to 11%. As a result, stamp duty to be paid on new and old flats will no longer vary substantially.
RR is an annual statement of rates based on which stamp duty is collected from property buyers.
In 2014, for instance, if you would have to shell out Rs 10.1 lakh stamp duty for a new 1,000-square-foot flat in Bandra, you would pay Rs 9.2 lakh for a flat in a 20-year-old building. In 2013, for the same flat in a new building, you would have paid Rs 9.16 lakh stamp duty, and around Rs 6.4 lakh in a 20-year-old building.
Real estate watchers say drastic reduction in depreciation benefits will hit resale market at a time when the demand for new flats is already stagnant. The stamp duty and registration department’s new rules have made buying flats even in 20-year-plus buildings an expensive proposition, they add.
According to the RR valuation guidelines, the permissible rate of depreciation on old buildings is up to 70% of the market value. If the market value arrived at, after allowing for depreciation, is less than the developed land rate, the valuation has to be done as per an RR formula.
“The government has increased property rates by up to 20% in the 2014-RR. Besides a 36% increase in construction cost has only added to consumers’ burden as they will not get the benefit of reduced depreciation. This is especially true in western suburbs where the market value for old buildings is much lower than the prevailing land rate. So, technically, a buyer of an old flat will pay almost the same rate as that for new buildings,” said Rajesh Mehta of Raha Realtors.
“In addition to shelling out a high stamp duty, the buyer will have to pay high income tax as the department will take the new property value as the base price and not its depreciated value,” Mehta added.
Reduction in depreciation will have a huge bearing on redevelopment of housing societies, experts say. The government has hiked the construction cost for RCC buildings by 32% in the city to Rs 25,500 a square metre from Rs 19,600 a sq m in 2012 and by 36% to Rs 24,000 sq m from Rs 17,800 sq m in 2012.