Your dream home to become dearer
Post-March 31, 2007, since developers’ profit will get taxed, investors’ return will also get taxed.
KOLKATA: Individuals, especially middle and low income families planning to buy their dream houses, may have to shell out a bit more from April 2007. In addition to spiralling realty prices, residential apartments of a particular category are likely to become dearer as developers are queuing up to pass on the additional burden, following non-extension of the income tax benefits under Section 80IB (10) from next month.
ET spoke to a cross section of real estate developers who confirmed that the price per square feet (sq ft) of nearly all newgen apartments sanctioned after March 2007 may appreciate by nearly 5-10 %. Some of them were unwilling to quantify the percentage increase saying that the increase will vary from developer to developer, depending on the developers’ ability to absorb the burden.
A section of the housing loan financiers also corroborated that the move would further fuel real estate prices. As per the criteria laid down in Section 80IB (10), residential projects approved before March 31, 2007, will be able to avail of the income tax exemptions. Apartments in metros like Mumbai and Delhi with a built-up area of less than 1,000 sq ft are eligible for the benefits under the said Section, while in other cities, those with a built-up area of less than 1,500 sq ft are eligible. This apart, the section also states that `the project is on the size of a plot of land which has a minimum area of one acre.’
Industry circles claim realtors have been burdened with rising input costs, including that of cement, clinker, steel and rising construction cost. “Discontinuation of tax holiday will also have an impact on developers’ margin,” an industry source said. Confederation of Real Estate Developer’s Associations of India governing board member Pradip Kumar Chopra said private equity investors, including foreign direct investments , invest because of an assured minimum return by developers.
ET spoke to a cross section of real estate developers who confirmed that the price per square feet (sq ft) of nearly all newgen apartments sanctioned after March 2007 may appreciate by nearly 5-10 %. Some of them were unwilling to quantify the percentage increase saying that the increase will vary from developer to developer, depending on the developers’ ability to absorb the burden.
A section of the housing loan financiers also corroborated that the move would further fuel real estate prices. As per the criteria laid down in Section 80IB (10), residential projects approved before March 31, 2007, will be able to avail of the income tax exemptions. Apartments in metros like Mumbai and Delhi with a built-up area of less than 1,000 sq ft are eligible for the benefits under the said Section, while in other cities, those with a built-up area of less than 1,500 sq ft are eligible. This apart, the section also states that `the project is on the size of a plot of land which has a minimum area of one acre.’
Industry circles claim realtors have been burdened with rising input costs, including that of cement, clinker, steel and rising construction cost. “Discontinuation of tax holiday will also have an impact on developers’ margin,” an industry source said. Confederation of Real Estate Developer’s Associations of India governing board member Pradip Kumar Chopra said private equity investors, including foreign direct investments , invest because of an assured minimum return by developers.
“Post-March 31, 2007, since developers’ profit will get taxed, investors’ return will also get taxed. To deliver promised returns to investors, we will have to improve margins which we can by increasing the product price. Buyers will, therefore, have to bear this burden in the coming months,” Mr Chopra added.
Buyers, who have already booked their flats, will not feel the pinch, real estate consultant CL Baid of Champalall & Co pointed out. “It may slow down the investment flowing into real estate segment, particularly, FDI. This, in return, will slow down the growth rate of real estate sector and in the process also effect over 300 industries dependent on real estate business and employment opportunities ,” said Mr Chopra.
“Property prices are likely to rise. This, coupled with the northbound interest rates, is changing the dynamics of the housing loan scene. It will get increasingly difficult for small and middle income groups to purchase properties in this market because rising interest rates means a reduction in borrower’s entitlement for a loan,” R Nambirajan, managing director, DHFL Vysya Housing Finance Company, observed.
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