Budget baffles builders
The booming real estate sector had hoped that Finance Minister P Chidambaram would brandish his magic wand and unleash slew of sops, which would enable the common man buy the dream house at an affordable cost. Booming economy, marred by upward curve in the inflation, might have cautioned the Finance Minister in the aam admi government to concentrate more on roti than on makaan in the Budget 07-08. While, the Finance Minister has cleared reverse mortgage scheme for senior citizens, confusion prevails on small apartments, as silence on the much-expected Income Tax provision of 80 IB (10) has evoked mixed interpretations. Small apartments Under the section income earned from the construction of small apartments of the size of 1,000 square feet and less in Delhi and Mumbai and 1,500 sq ft and less in other cities, could avail 100 per cent IT exemption on profits (which ranges between 30 and 50 per cent). But the provision is to lapse from March 31, 2007. Delhi-based developers like Pradeep Jain of Parsvanath Group and Ajay Khanna, director of DLF group, interpret this in a negative way - the Centre has not taken a decision to extend the benefit. “Though there are only a few developers constructing small-sized flats, the move to take away the incentive will rather discourage them to continue building them. This will affect the supply of such flats. It will affect property prices which will increase sooner or later,” says Niranjan Hiranandani of Hiranandani Developers. Analysts were of the view that input cost in construction of small apartments is 15 per cent higher than for premium segment apartments. Per square foot price of premium apartments is higher than that of smaller ones. So, developers would obviously prefer to construct premium segment apartments. Clarity on this aspect by the Finance Ministry would rekindle many to opt to buy their dream homes, already hit by rising home loan interest rates. But, they may have to bear with the differential excise duty on cement. Commercial rent G. P. Savlani of the Confederation of Real Estate Developers Association in India says the levy of service tax on rental commercial premises, wherein the owner of the premises does not provide any service, is uncalled for. He only provides the vacant premises and the lessee carries out interiors, etc. on which, in any case, he pays the service tax. There is already a short supply of office space and currently the demand and supply is a total mismatch. Levy of service tax will make rental premises more expensive, which will ultimately be a burden to the customer. This will lower the owner’s yield and an investor may turn away from real estate. The domestic real estate venture capital funds, which have already put money into income yielding assets, will suddenly find the income going down by 12.5 per cent,” he says. Source:tribuneindia
