Budget 2012 impact: Housing prices likely to rise on increase in service tax

Housing prices are all set to increase marginally due to the proposal to increase service tax by 2 per cent, realty players said on Friday. 

"Application of TDS on the purchase and sale of property and increasing Service Tax by 2 per cent will further add on to the overall cost of property and are bound to make property more costly in coming days," Confederation of Real Estate Developers' Association of India (CREDAI) Chairman Pradeep Jain said in a statement. 
Realty consultant DTZ said that increase in the service tax is going to further increase marginally the overall burden on the home buyers of mid and high segment (dwellings costing more than 25 lakhs). The impact of service tax would be about Rs 40,000 on a Rs 75 lakh home. 

However, DTZ said that affordable housing, being part of negative list, is exempted from service tax and the move would give a boost to the affordable housing segment. 

Property consultant CBRE South Asia Chairman and Managing Director Anshuman Magazine said the budget did have positives for realty sector, such as external commercial borrowing (ECB) for low cost housing, extension of interest subvention scheme for low cost housing and service tax exemption on low cost housing upto an area of 60 sq meter. 

Giving mixed reaction, Jones Lang LaSalle India Chairman and Country Head Anuj Puri said that "the increase in the service tax rate from 10 per cent to 12 per cent will increase the cost of production for developers, who are already reeling under high input costs. It follows that this increased burden will be passed on to end users".

Omaxe Chairman Rohtas Goel noted that budget would give boost to affordable housing, but felt that "what nullifies the above positivity is an increase in service tax and excise duty to 12 per cent each resulting in an increase in cost of raw material". 

Puri of JLL India said that exempting proceeds from the sale of a residential property from capital gains tax if they are invested in equity or equipment of an SME would provide home owners with more reinvestment options. 

In Budget for 2010-11, Finance Minister Pranab Mukherjee had brought development of real estate complexes under the ambit of service tax unless the entire consideration for the property is paid after completion of construction. 

Complex is defined as consisting of more than 12 residential units. The service tax is levied on 25 per cent of the gross sale value of property.

(http://economictimes.indiatimes.com/markets/real-estate/news-/budget-2012-impact-housing-prices-likely-to-rise-on-increase-in-service-tax/articleshow/12296550.cms)