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Service tax, excise duty to make homes dearer

March 10, 2010 09:42 IST

Home buyers are set to face higher prices due to the imposition of service tax, as well as an increase in cost of various inputs like cement, according to leading developers in the housing segment.

"By bringing housing under the service tax net, the government has given a clear signal that we have to increase prices. In addition, input costs will also go up due to the increase in excise duty on cement. I am certain there will be a price rise in the realty sector across India as developers are not going to bear the brunt," DLF executive director Rajeev Talwar said.

He refused to measure the increase in percentage terms, but said any rise in prices would "depend on each project as input costs varied from city to city".

'Archaic laws'

Talwar also stressed on the fact that a lot of policy changes were needed as the laws governing the realty segment were archaic. "We need to understand that there have been no initiatives to facilitate realty development in this country. We are still ruled by archaic laws and this needs to change - fast," he said.

Logix Group chairman and CEO Shakti Nath also said it was unfortunate that service tax had been levied on the housing segment even as input costs were expected to rise because of the excise duty on cement. "We expect prices in the housing sector to go up 5-7 per cent," he said.

'Business to take a hit'

Realtors like TDI Infrastructure feel any announcement of an increase in prices will dampen the affordable housing business at a time when realtors already face razor-thin margins.

"It is quite sad that the housing sector has come under the service tax net. We have to see how much of it can be borne by us. On the whole, we believe prices are sure to increase, as inputs costs are going to increase for developers," TDI Infrastructure executive director (Marketing) Kunal Banerji said.

Consultants in the industry are also of the view that, sooner or later, developers will have to hike prices. The overall impact of service tax on housing will be around 3.5 per cent for developers and consultants believe this is going to be a key factor in the increase of prices in the realty segment.

However, they add, the quantum of such a hike will depend on how much of the additional costs the developers are willing to bear themselves.

Leading real estate consultancy Jones Lang LeSalle Meghraj's CEO (Operations) Santosh Kumar said: "With the increase in excise duty on cement and higher fuel prices (which will impact transportation costs of construction material), the developers will face higher input costs. We have to wait and watch when the developers decide to increase prices. But, it seems very likely that prices will go up."

Atanu Kumar Das in New Delhi
Source: