Real estate industry stakeholders are expressing concern that the costs associated with the purchase or construction of homes are expected to rise significantly. This anticipated increase is attributed to a projected hike in the prices of essential raw materials, namely cement and steel, in conjunction with a 2 percent increase in the service tax. While low-cost housing may remain relatively immune, forecasts suggest that property prices could escalate in the near future following the proposed service tax increase from 10 percent to 12 percent.
Furthermore, a new Tax Deducted at Source (TDS) at the rate of 1 percent on the transfer of immovable property (excluding agricultural land) above a designated threshold will contribute to additional costs for homebuyers. This threshold is set to be over Rs 50 lakh in urban settings and Rs 20 lakh elsewhere, as outlined in the budget proposals.
Cement and steel producers have already indicated a likely price increase, following the budget's proposed raise in excise duty to 12 percent.
Pradeep Jain, the Chairman of the Confederation of Real Estate Developers’ Association of India (CREDAI), commented on these budgetary proposals, stating, "Application of TDS on the purchase and sale of property and increasing Service Tax by 2 percent will further add on to the overall cost of property and are bound to make property more costly in coming days."
Consultants from DTZ have explained that the rise in service tax is expected to marginally increase the financial burden on homebuyers, particularly those in the mid to high segment; homes valued over Rs 25 lakh will likely see an impact. For instance, buyers of homes costing Rs 75 lakh might face an increase of around Rs 40,000 due to this service tax hike.
On a positive note, DTZ highlighted that affordable housing is included in the negative list, thereby exempting it from the service tax. This exemption is anticipated to provide a boost to the affordable housing market segment.
Further elucidating the situation, Anuj Puri, Chairman and Country Head of Jones Lang LaSalle India, remarked, "The increase in the service tax rate from 10 percent to 12 percent 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."