The proposal to levy service tax on real estate is likely to push up apartment prices by 6-7% in tier II and III cities, while tier I cities may witness a 0.5-4% hike in property prices
There is no doubt that service tax will severely impact the country’s property market in general and affordable housing in particular. Besides, if not withdrawn, it will be a double blow to the realty sector, which is gradually witnessing better days after a rather sedate last year. Even before implementation, the proposal to impose service tax on the housing industry has hit the sentiments and has depressed the mood of the market. A large number of interested customers for affordable homes have already shelved their plans to buy their dream abodes, which is pretty sad and unfortunate. It seems that the government’s decision will compel affordable housing to die a premature death and will be contrary to its ambitious target of ‘affordable housing for all’. It was not so long ago, when people used to slam realty players for their indifference towards affordable homes. The irony is currently when increasing number of developers are upbeat about constructing low-cost housing units, Mr Mukherjee has introduced service tax in the realty sector. However, I personally opine that despite the unjustified service tax proposal, desperate customers will still book their homes as most Indians prefer to own a property rather than staying in rented flats. But this was not expected from the Congress government, which addresses itself as the ‘Aam Aadmi ki Sarkar’. I fully share the decision of CREDAI (Confederation of Real Estate Developers’ Associations of India), the Associated Chambers of Commerce and Industry of India (ASSOCHAM) and Maharashtra Chamber of Housing and Industry (MCHI) to approach the finance minister to seek a rollback of service tax on the real estate sector. Earlier this month, the Finance Ministry has ruled out the rollback of service tax. Apartment prices to rise The proposal to levy service tax on the real estate sector is likely to push up apartment prices by 6-7% in tier II and III cities, while tier I cities may witness a 0.5-4% hike in property prices. Furthermore, according to the budgetary announcements service tax will be calculated on construction cost. Consider this: In New Delhi, a Rs 35,000-per square feet (sq ft) apartment will draw 0.5% tax (10.3% on construction cost of Rs 2,000 per sq ft), while in the suburban parts of the capital city, a Rs 1,200-per sq ft property will attract around 7.25% service tax (on construction cost of Rs 900 per sq ft). I strongly feel that the aforementioned suggestion will spell a death knell for the country’s affordable housing market. If houses are taxed so heavily, it will be impossible for developers to build low-cost apartments. There is no other option before all the stakeholders in the realty sector to request the government for a rollback. Honestly speaking, there is also utter confusion whether the service tax is to be charged on sale of under-construction properties. It is high time that the Finance Ministry clarifies the whole situation. Will the finance minister be able to bring smile on the faces of thousands of Indians, who were making plans to book their flats? Given his formidable track record, one can hope for the same. Samir Jasuja, founder and managing director of PropEquity Research, a realty data and analytics firm in New Delhi |
