Redeveloping Your Old Home: Bigger Flats Mean Higher Maintenance and Property Taxes

When old apartments are redeveloped, it can lead to more space, better comfort, and modern amenities. But there’s a catch. The catch is the maintenance fees, which typically go up after redevelopment since modern buildings are pricier to maintain.

There’s also the expense of running the building’s facilities and the increased property tax. Older buildings might lack features like lifts, gyms, safety systems, and power backups, but after redevelopment, these amenities might be added by the builder. This means higher costs for managing infrastructure and services that older buildings usually don’t have.

According to a TOI article, in a new luxury residential building in Bandra West, the original residents who got 20% larger apartments in the redeveloped property are now shelling out up to Rs 26,000 a month in outgoings and municipal taxes. Before the redevelopment, the owners were paying Rs 5,000 a month, taxes included.

Keep reading to understand why this happens and what homeowners who are redeveloping their apartments should know.

Under the New Capital Value System, How Are Property Taxes Determined?

Nachiket Bhatwadekar, Managing Director, Residential (West India) at Colliers, said to ET Wealth Online: “Under the revised system, property tax is generally linked to a property's current market value rather than the rent it could earn earlier.”

Bhatwadekar explains: “In many cities that follow this method, including Mumbai, residential properties are taxed at roughly around 0.4% of capital value, while commercial properties attract significantly higher rates due to their business use.”

Some municipalities like BMC also provide relief for smaller homes, often protecting compact units from sharp increases. Overall, the system aims to make property taxation more transparent and aligned with actual property values.

Is It True That Property Taxes Would Increase Based on the Latest Sale Transaction?

Bhatwadekar says that property tax does not increase simply because one flat sells at a high price, as authorities rely on standardized valuation methods rather than individual transactions. When a building is redeveloped, the earlier tax assessment is replaced with a fresh valuation, based on the new structure.

Bhatwadekar adds: “Because the property is now newer, typically larger, and built to current standards, its official value increases, which can lead to higher property tax. This rise is driven by reassessment of the improved asset rather than by market speculation or individual high-value sales.”

Sana Khan, Associate Partner, SNG & Partners, Advocates & Solicitors, says that it is true that property taxes would be assessed keeping in mind the ‘value of property’ as indicated in the Stamp Duty Ready Reckoner for the time being or the market value of such property as the base value.

According to Khan, until 2009, property tax computation was placed solely on the basis of rateable value.

Khan explains: “Since the rateable value was purely based on the rent/licensee, it had become a common practice to manipulate the rent by splitting the rent into various components like furniture & fixture, business, etc., which led to huge revenue loss to the corporation. The entire trick of dodging the property tax was let go.”

Here’s a look at the increase in flat maintenance fees an owner has to cover for a 1000 square feet and 2000 square feet house in different areas of Mumbai:

1,000 Square Feet Flat

| Location | Flat Size | Old Rate (INR PSF) | Monthly Outflow (old) | New Rate (INR PSF) | Monthly Outflow (new) | % Increase (PSF rate) | |---------------------------|-----------|---------------------|------------------------|--------------------|------------------------|-----------------------| | South Mumbai (Dadar/Prabhadevi) | 1000 sq feet | Rs 6 | Rs 6000 | 18 | Rs 18,000 | 200% | | Lower Parel | 1000 sq feet | Rs 5.5 | Rs 5,500 | Rs 17 | Rs 17,000 | 209% | | Bandra | 1000 sq feet | Rs 5 | Rs 5,000 | Rs 16 | Rs 16,000 | 220% | | BKC (Bandra-Kurla Complex)| 1000 sq feet | Rs 6.5 | Rs 6,500 | Rs 20 | Rs 20,000 | 208% |

2000 Square Feet Flat

| Location | Flat Size | Old Rate (INR PSF) | Monthly Outflow (old) | New Rate (INR PSF) | Monthly Outflow (new) | % Increase (PSF rate) | |---------------------------|-----------|---------------------|------------------------|--------------------|------------------------|-----------------------| | South Mumbai (Dadar/Prabhadevi) | 2000 sq feet | Rs 6 | Rs 12,000 | Rs 18 | Rs 36,000 | 200% | | Lower Parel | 2000 sq feet | Rs 5.5 | Rs 11,000 | Rs 17 | Rs 34,000 | 209% | | Bandra | 2000 sq feet | Rs 5 | Rs 10,000 | Rs 16 | Rs 32,000 | 220% | | BKC (Bandra-Kurla Complex)| 2000 sq feet | Rs 6.5 | Rs 13,000 | Rs 20 | Rs 40,000 | 208% |

Source: Colliers Figures are indicative and for illustrative purposes only. Actual maintenance charges vary by society, amenities, staffing, building height, and local operating costs.

Under the New Capital Value System, How Are Property Taxes Determined? How Different Is It from the Old Rateable System?

Khan says that earlier the rateable value was determined on the basis of the annual rent which the property could reasonably be expected to fetch if it was rented out, according to the Mumbai Municipal Corporation Act, 1888 (MMC Act).

Khan explains that under the new system, to establish the capital value of a property for tax purposes, the Municipal Commissioner will consider the property’s value as listed in the Stamp Duty Ready Reckoner or its market value as the base value.

Khan points out that according to Section 154(1A) of the MMC Act, which was added through an amendment, while fixing the capital value, the corporation can also take into account:

- The nature and type of the land and structure of the building - Area of land or carpet area of the building - User category - Age of the building - Such other factors as may be specified by rules made under subsection (1B) of Section 154

Why Does Maintenance Rate Increase for Redeveloped Flats?

Bhatwadekar says that maintenance charges usually increase after redevelopment because modern buildings cost more to operate.

Bhatwadekar explains: “Contemporary residential complexes require lifts, security, backup power, safety systems, and continuous upkeep. While larger apartments increase each owner's share of expenses, the main factor is the ongoing cost of running infrastructure and services that older buildings typically did not have.”

What Is the Difference in Property Tax Rate for Old Buildings and Redeveloped Old Buildings?

Khan says that old buildings are assessed at lower property tax due to their age-related depreciation and probable lack of modern amenities. Whereas, redeveloped buildings are taxed on the capital value which is based on the current market value, higher Floor Space Index (FSI), and modern infrastructure.

Khan adds: “The Ready Reckoner value depends on factors like the location/area in which the property is situated, how old is the building, etc. Therefore, yes old buildings have lower RR value due to their age. However, it may be added that an old building located in a prime location may have a higher RR value as compared to a new building situated in a far suburban area.”

For Old Flats, Rents Are Protected Under Rent Control Act, but That Is Not the Case for Redeveloped Old Buildings

According to Khan, the Maharashtra Rent Control Act, 1999 regulated the age-old “pagdi” tenants who have been bestowed with tenancy rights. Under such rights, the tenants are protected against whimsical eviction or even exorbitant increases in rent.

Khan explains: “When an old building is redeveloped, the earlier tenants are given permanent alternate accommodation which gives them the rights as ‘owner’ of the flat unit. Therefore, when such flats are rented out, they are done so as ‘lease’ terms of which are governed under the Transfer of Property Act, 1882.”