Cheers for buyers

Home sales may go up, but no incentive for developers.

Though the Budget has given sops to home buyers in the form of tax savings and interest rate subvention, it has quitely brought back the much-dreaded service tax on lease rents in the Finance Bill.

While home sales are likely to go up, the buyers may have to shell out more for their dream homes as developers plan to pass the service tax on to the buyers.

The Budget has announced a maxium tax savings of Rs 20,000 for those earning up to Rs 5 lakh annually and a maximum of Rs 50,000 for those earning up to Rs 8 lakh. This additional income is likely to find its way towards buying homes.

Says Aashiesh Agarwaal, research analyst at Edelweiss Capital: “For people getting an annual income of Rs 8 lakh, there will be a saving of 10 per cent, which will increase disposable income and their affordability. This will mean that they can pay a higher equated monthly installment and will be eligible for higher loans.”

“Overall, the home sales may go up, but there is no incentive for developers to launch more affordable housing projects. Why should we launch affordable projects?” said Niranjan Hiranandani, managing director of Hiranandani Constructions.

The biggest worry of developers was the re-introduction of service taxes. In April 2009, the Delhi High Court stayed the service tax on lease rents when some of the retailers approached it opposing the government move to impose the same in 2007.

According to the Finance Bill, service tax will be levied for renting immoval property or any other service to such renting with retrospective effect from June 1, 2007. The service tax rate is 10 per cent at present.

The budget has increased the permissible built-up area of shops and commercial establishment s in housing societies from from 2,000 square feet to 5,000 sq ft.

However, the hotel industry has given a thumbs up to the finance minister’s move to give investment-linked deduction to new hotels with two-star category and above.