The Union budget may have offered a slew of incentives for the affordable housing sector, but the very definition of affordability may exclude Mumbai from reaping the benefits. Buyers will have shell out more money due to the two per cent increase in service tax, analysts and experts said on Friday.
The Finance Minister has granted service tax exemption to 17 services in the negative list provided by the government and this includes low-cost mass housing up to an area of 60 sq m created under the government's Affordable Housing in Partnership scheme. However with the general increase in service tax from 10 per cent to 12 per cent, developers are expected to pass on the costs to buyers.
According to Anshul Jain, CEO of DTZ India, the hike in service tax is bound to raise the cost of an Rs 75 lakh apartment by Rs 40,000. “Increase in service tax is going to further increase the overall burden on the home buyers of mid and high segment,” Jain said. In case of Mumbai, where most houses cost more than Rs 1 crore, this would mean an additional burden of Rs 50,000 plus on home buyers.
Both the Maharashtra Chamber of Housing Industry and the Confederation of Real Estate Developers' Associations of India have flayed the Union budget stating that it does not offer any relief to an industry that expected a lot more as it contributes about 6.5 per cent to GDP. Paras Gundecha, president, MCHI said, that the government's definition of affordable housing excludes cities like Mumbai from its purview.
Moreover, the extension granted for interest subvention of 1 per cent on housing loans up to Rs 15 lakh where the cost of the house does not exceed Rs 25 lakh will also leave Mumbai out of its fray. Analysts said that Mumbai, where an affordable house costs anywhere between Rs 40 lakh to Rs 75 lakh, won’t see any impact of this concession on residential demand. The External Commercial Borrowing (ECB) that has been allowed for easing the credit crunch faced by low cost housing projects would also not benefit Mumbai for similar reasons. However, in most tier 2 and tier 3 cities this will allow developers to borrow from other countries at much lower interest rates and produce greater volumes. Samir Jasuja, chief executive officer at the real estate research firm PropEquity, however, said, “The ECB nod just