Industry experts opine that while some budgetary proposals may strengthen the financials of the sector, declarations such as levying service tax on under-construction housing projects is likely to have a negative impact on the sector Of late, rising demand is encouraging property developers to appreciate property prices, especially in prime locations across major cities in “The recent trend to hike property rates, coupled with striking budgetary announcements such as levying service tax on under-construction housing projects is likely to discourage potential buyers, thereby impacting the sector in the long-term,” says Anuj Sharma, a Noida-based realty analyst. Present scenario Currently, the residential segment is witnessing rapid recovery, while commercial realty space and retail segment are recovering at a slow pace. According to the third quarter performance (October-December period) of 2009-10, all listed property firms registered a 27% rise in net sales as against the previous quarters. This was facilitated by prominent growth drivers such as improving market scenario, positive buyer sentiments, launch of affordable housing units and stability in the job market. On the flip side, profit margins of several developers have dipped considerably, although sales have shot up. This is primarily because affordable or low-cost housing does not allow realtors to retain 50-60% margins, which was otherwise possible from the premium or luxury segment. Therefore, net profit has dropped from 50% in December 2008 quarter to around 20-25% in December 2009 quarter. Furthermore, leading developers such as DLF, Unitech and Orbit Corporation Limited, among others reported a significant drop in profit margins due to increasing construction cost. For instance, DLF registered a 33% rise in construction cost in December 2009 from 22% in September 2009. Impact of Budget 2010-11 Industry experts and analysts opine that the Union Budget 2010 has neglected the realty sector, as hardly any significant measures have been undertaken to boost the sector’s growth. The various budgetary proposals include 1-year extension of the implementation period for pending housing projects (from earlier 4 years to current 5 years) for claiming tax benefits. Industry leaders have suggested extension of the project implementation period by 1 year, keeping the date of commencement unchanged as a ‘one time interim relief’ for the developers. Besides, the finance minister declared 1 year extension of the interest rate subvention scheme and increased proportion of commercial space in housing projects from the existing 2% to 3%. Although these proposals may strengthen the financials of the sector, declarations like imposition of 3.3% service tax on the total property value will eventually lead to a slowdown in demand offtake in the near future, opine industry leaders. The National Real Estate Development Council (NAREDCO) has decided to hold a meeting to discuss the aforementioned issue as it may pose a threat to the sector’s growth in the long-term. “The realty sector has always been neglected, which has eventually led to a housing deficit of around 27 million, thereby forcing many in urban India to live in under- dignity accommodations. Therefore, it is high time that the government frames an effective strategy, which will be able to provide dignified shelter to the economically weaker sections (EWS) of the society and maintain a healthy social fabric in the country,” says Lalit Kumar Jain, CMD of Kumar Builders, a leading property firm headquartered in Pune. However, Mr Jain warned that to encourage developers to play a key role in achieving this mammoth task, concerted effort is required from the government. On the brighter side, the sector’s performance in the stock market has improved and there has been rise in loan disbursals over the last few months. Besides, registration and mortgage data expect a pick-up in residential sales over the coming months. Jeeta Bandopadhyay |
