Prices of apartments have shot up by around 3-4% due to service tax imposition After a prolonged lull due to the economic meltdown, the real estate market in Mumbai is once again finding itself in troubled waters. This time it is additional costs—comprising 1% value-added tax (VAT), the recently proposed service tax in Budget 2010-11 and maintenance charges—that are prompting buyers to cancel property deals. Where lies the problem
However, with the finance minister bringing construction under the ambit of service tax, developers currently are insisting buyers to pay the aforementioned additional charges, while handing over the properties. This is proving fatal for the city’s property market as many buyers are finding these charges too costly to bear. Prices of apartments have shot up by around 3-4% due to service tax imposition. For instance, for a property worth Rs 20 lakh, a buyer would now be required to pay an extra Rs 60,000-80,000 on account of service tax. “It is very obvious that the developers will not bear the additional costs but at the same time it is unfair to offload the same on consumers. Since the Centre has not given any notification on the same, builders can send a draft notification to the buyers stating that in case the government remains firm in its decision to levy the service tax, then buyers will have to pay the extra amount,” says Deepak Tapre, a city-based realty analyst. The association further points out that demand for property will eventually decline, which in turn is likely to correct residential property prices in Mumbai by around 30-40%. Urban development minister pleads Anticipating the adverse impact of the service tax on the housing sector’s growth, urban development minister Jaipal Reddy has already written to the finance minister for a rollback of the proposed service tax. “The rollback of the service tax seems to be a must need to sustain the current growth of the country’s property market in general and affordable housing in particular,” says Samir Jasuja, founder and managing director of PropEquity Research, a New-Delhi based realty data and analytics firm. Since this is quite a serious issue, Mr Reddy has also confirmed to call the finance minister and request him to withdraw the proposal. Jeeta Bandopadhyay |
According to the Estate Agents Association of India, the city recorded an increasing amount of deals during 2006-07, as many buyers purchased properties anticipating that apartment prices will move up further. At that time, buyers only paid the flat value and there was no mention of any service tax or VAT in the agreement signed. 
