As per unconfirmed media reports, the Government of Maharashtra has approved a 50% reduction in premiums for ongoing and new real estate developments undertaken up to Dec 31, 2021. The move follows a reduction in stamp duty for a temporary period that saw record registrations and incentivized consumer purchase since September 2020. The move will likely benefit upcoming projects of Oberoi Realty, Sunteck and Godrej Properties.

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Kotak says the decision will help improve margins for developers and incentivize faster development (or upfront payment of premiums) in the case of forthcoming projects. Premiums typically account for 10-15% of the selling price and a 50% reduction (assuming nothing is passed on) is a meaningful improvement in overall project economics, though note that the developer will not benefit in the case of joint development agreements wherein the onus of approval costs is on the land owners.

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The move comes on the back of an expert committee report (led by Deepak Parekh) that recommended such a reduction under the Development Control and Promotions Regulations (DCPR). According to the committee, as of date, there are as many as 22 premiums collected in Mumbai under various heads—including FSI, staircases, lift wells, lobbies, etc. In comparison, Bengaluru has to pay ten different premiums; Delhi has to pay five and Hyderabad only three.

Kotak highlights that Mumbai garnered a record 19577 registrations worth Rs 339 bn in December 2020 alone, compared to average registrations of 4375 in the preceding twelve months.

Oberoi Realty, Godrej Properties and Sunteck Realty among Kotak’s coverage universe have a large presence in Mumbai and will likely benefit from the proposed government policy. Oberoi will specifically benefit on approval costs for its upcoming Thane projects. Sunteck Realty will benefit on new launches in Oshiwara, even as the onus of land approval cost is on the land owner for its projects in Naigaon, Vasai and Vasind. Godrej Properties has a host of projects in Mumbai and Pune, although its pan-India presence implies that these cities account for 69% of overall NAV within which forthcoming projects (outside DMs) account for 43% of the overall NAV. In comparison, forthcoming projects account for 56% of the overall NAV for Oberoi Realty.

Trend of consolidation in the real estate sector is evident with more formalization coming in the sector due to RERA, GST and post the NBFC crisis. The performance of the past six months has seen a recovery for development plays, relative to pure annuity investments. We continue to like DLF and Oberoi Realty among the larger companies, and Sobha and Brigade among the mid-cap names.