Hike in Maharashtra stamp duty rates to increase cost

By: Subhankar Mitra, Head – Strategic Consulting (West) Jones Lang LaSalle India

The proposed revision of the stamp duty in Maharashtra for leave-license would definitely impact the rental market in the residential, commercial and retail asset classes. The corporate commercial property market would be less affected, since this asset class typically operates on leases locked in for longer tenures which can extend up to 3-5 years. However, retail property leases would feel the pinch, since this sector typically works on annual leases in the form of leave and license.

The proposed hike in stamp duty would increase occupancy costs for retail businesses and also for tenants in residential premises. Mall occupancies would not be impacted as much as high streets, since most malls now operate on revenue sharing arrangements. High street retail spaces, however, still adhere to the leasing model.

Residential apartments are usually given on renewable leases of 11 months, with the nature of agreement being  leave and license. The current stamp duty on these agreements is nominal at 0.1% of the lease amount. If the proposed hike takes place, a person paying a rent of Rs. 10000 per month will cough up stamp duty to the tune of Rs. 1200 as opposed to  the earlier Rs. 120 rupees.

On an immediate basis, there would not be any significant change in demand if the hike is implemented. However, more and more tenants in cities like Mumbai and Pune would begin showing a preference for owned rather than leased properties, as this would make more financial sense. This dynamic would be more evident in Mumbai, as this city sees a higher incidence of property leasing on the account of the high cost of ownership. Less expensive cities like Pune would show a lower and slower impact.