Friday, March 23, 2012: 07:52:27 PM

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Realty sector not happy with Budget 2012-13

Increase in service tax and excise duty will set inflationary trend; ECBs for affordable housing and continuation of the interest subsidy on certain level of loans would provide a thrust to the sector

The Union Budget 2012-13 has failed to excite the real estate fraternity. Most real estate developers have mixed reactions, with almost all agreeing that the expectations of the sector have not been met.

 
Industry opinion
 
ConstructionBiz360 spoke to a few renowned property firms and their views are presented below.
 
According to Ganesh Vasudevan, vice president and business head at IndiaProperty.com, “The overall Budget 2012-13 for the realty market is not very convincing both for buyers and sellers alike, save for a few interventions in the affordable housing segment. The service tax, which has been raised from 10% to 12%, will have a direct impact on property prices. The cost of construction will go up and it will directly impact on the selling price in the market. But at the same time it is also expected that the demand for affordable homes will go up, despite all the recent fluctuations and tax amendments.”
 
Sharing similar view points, R Sarabeswar, chairman and CEO at Consolidated Construction Consortium Limited, said, “Despite remarkable introductory speech, in action, expectations not likely to be met. Of course ECB in low cost housing and in certain areas may ease funds for infrastructure projects. Increase in service tax and excise duty will set inflationary trend. Since there is no clear guidance about GST and DTC, it is disappointing.”
 
K S Sudarshan, chief operating officer at Ozonegroup shared a different opinion, as he said that the Budget lacks on reforms intent. While explaining his viewpoint, Mr Sudarshan pointed out how the Finance minister has tweaked the rates and said that political compulsions probably held him back from looking at reforms initiatives. His reactions can be listed in the following four points:
  • ECB for the low-cost housing and interest subventions for the affordable housing is a good initiative
  • Direct taxes provide some relief, but this is not a significant push for higher home buying
  • Inclusion of affordable housing under other industries for reduction of withholding tax for interest payment is a good policy move
  • Increase in excise duty and service tax will increase the burden on home buyers.
 
Bhaskar Raju, executive director at DivyaSree Realtors, said, “The Budget has been virtually neutral to the real estate sector, except for low income/affordable housing segment. Permitting of ECBs for affordable housing and continuation of the interest subsidy on certain level of loans would provide a thrust to what is the government’s main concern – the housing shortage at the lower end of the economic spectrum. However, the increase in service tax would hopefully not neutralise this benefit as cost of construction would definitely increase, thereby impacting pricing.”
 
Mr Raju added that the additional avenue provided for capital gains exemption by investment in shares of SMEs may not have such an impact on the real estate sector, but might provide a fillip to the struggling SME diaspora.
 
Some developers have also indicated that the removal of the sectoral cap on venture capital funds is a positive move, but the details need to be studied.
 
Jeeta Bandopadhyay

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