KOCHI : Reflecting a sluggishness in the real estate market, Kerala’s revenue from land transactions show a declining trend despite a steep hike in stamp duty and registration charges from April 1, 2023.
A closer look at the budget documents reveal that the state government’s revenue from stamp and registration charges is expected to decline to Rs 6,111.79 crore in the 2023-24 fiscal, down by Rs 104.92 crore (around 1.7%) from Rs 6,216.71 crore in 2022-23.
In his 2022-23 budget, finance minister K N Balagopal had proposed a 25% increase in the property tax rate, effective from April 1, 2023. The increase was in a phased manner, with a 5% hike in each of five successive years. The stamp duty was hiked from 5% to 7%, in addition to 2% registration charges.
“While most other states have reduced the property transaction charges to 1% and 2%, the registration charges are at 9% in Kerala (7% stamp duty and 2% registration charges). Because of these high transaction costs, those who are planning to buy flats for investment purposes are refraining from doing so,” said Sunil Kumar V, founder and managing director of Asset Homes, a leading property developer.
Earlier, the government had hiked the fair value of land by 20%, which too came into effect from April 1 last year. The revenue from stamp duty and registration had risen by 28% for the year ended March 2023 from Rs 4,857.33 crore to Rs 6,216.71 crore as people rushed to register their properties before the higher rate came into effect.
The fair price for the land, first implemented in 2010, was revised at least five times. Industry insiders said the fair price for land has gone up by 220% since 2010. Further, from April 1, 2023, the state was supposed to benefit from a 14% direct revenue from higher stamp duty, registration fees, and GST on real estate transactions (7+2+5) but this is not reflected in the numbers.
“The stamp duty and registration charges were hiked at the wrong time. Even if some transactions are happening, it’s only in the urban areas of Kochi and Thiruvananthapuram. The market is sluggish,” said Mary George, economist and a former head of the state government’s public expenditure review committee.
According to her, 11 lakh houses -- most of them palatial buildings belonging to expatriate Keralites -- are lying unoccupied in the state. “The housing sector is going through a slowdown. Whatever demand we are seeing is only for flats in cities. NRIs are investing in flats, but only if they are sure that it can be rented out,” she said.
State Planning Board member K Ravi Raman admitted that there has been a contraction in land transactions this financial year, which has extended to the real estate sector in general. He, however, blamed the banks, which are refraining from lending in the state, as the main reason for the sluggishness.
“The levels to which credit-deposit (CD) ratio has declined for major banks such as SBI is shocking. If you are buying some property or the other, you would like to get some assistance from the banks. But that’s not happening,” he reasoned.
Ravi Raman’s argument is substantiated in the latest statistics. For instance, SBI’s CD ratio is just 55% while Federal Bank’s CD ratio is even lower at 45%, even when the state average is nearly 64%. SBI and Federal Bank are the two leading banks in Kerala in terms of deposits. “Interestingly, the NRI deposits are rising in the state while banks are not putting the money back into the economy,” he said.
According to Mary George, land used to be the biggest asset in Kerala but not anymore.
“The property prices appreciated faster than gold prices. Now, there is no such appreciation,” she said.
Because of the higher stamp duty and registration charges, people hesitate to register properties, Sunil Kumar said.
“They will hold on to properties without registering it. Though transactions may be happening, it won’t result in ownership changes. Or people show lower prices and register,” he said.
Terming the high transaction costs investor-unfriendly, Sunil Kumar pointed out that land registration rates in Gujarat, Karnataka, Tamil Nadu or Mumbai are in the range of 2-4%. “Someone will get better appreciation for their investment in real estate in Mumbai or Bengaluru compared to, say Kochi, at lower transaction costs. Only end users are buying an apartment now,” he added.