Minimum 2% hike in property rates as excise, service tax up

Property prices will rise by a minimum of 2% immediately due to the hike in excise duty and service tax in the Budget, National Real Estate Development Council today said.

"Property prices are surely going to rise. Now we have to see who will raise how much. However, it will increase by at least two%," National Real Estate Development Council (NAREDCO) President Navin Raheja told reporters here.

In the Budget for 2012-13, Finance Minister Pranab Mukherjee proposed to raise excise duty and service tax by two% each to 12% from the earlier 10%.

Service tax was, however, exempted on construction activities in specified infrastructure, canals, irrigation works, post-harvest infrastructure, residential dwelling and low-cost mass housing up to an area of 60 sq metre under the affordable housing scheme in partnership.

"For the existing buyers, developers are likely to pass on the service tax burden only, but not the excise duty hike as the agreements were signed earlier. However, for the new buyers, we will pass on the entire burden," Raheja, who is also the Chairman and MD of Raheja Developers, added.

He said the prices of input costs are going up gradually and these need to be controlled.

"After the excise duty hike, all raw materials like steel, cement, electric and other finishing equipments are going to be more expensive," Raheja said.

Usually the cost of construction, which accounts for 70% of the total expenditure, will bear the pressure of excise duty hike. The service tax is usually charged on the remaining 30% of the expenditure, he added.

When asked about if sales will be affected, Raheja said: "The impact on demand is already there and it is fluctuating. In other words, we are seeing cautious increase in demand."

Last week, Confederation of Real Estate Developers' Association of India Chairman Pradeep Jain had also said the upward revision of the duties will further add pressure on to the overall cost of property that are bound be more costly in the coming days.