Budget 2012: Realty cos hope for no hike in service tax

Vineetha Athrey reports that low demand and liquidity concerns remain the Indian real estate sector's nemesis. The sector is now clinging to hope that the Finance Minister will, at least this year, offer some deliverance.

Battered by repeated rate hikes, which have meant a fall in sales, and a higher cost of funds, players are asking that Budget 2012 contain measures to revive demand and rationalise taxes.

One big hope is that rumours of a further hike in service tax on input materials and rental income will remain just that, rumours.

Chairman and managing director of CBRE South Asia, Anshuman Magazine hopes service tax on construction materials is not hiked. “Government imposed 10.3% service tax on construction materialsis passed on to the consumer, due to which the cost of housing goes up,” he said.

JC Sharma, managing director of Sobha Developers hopes the FM encourages developers to invest in real estate. “Allow the developer some income tax benefits so that he is encouraged to invest in realty more aggressively,” he said.

Some of the other big expectations are:
1. Infrastructure status to township development to reduce cost of borrowing;
2. Increase in the Rs 15 lakh cap on the 1% interest subversion for affordable homes whose value is less than Rs 25 lakh to boost demand;
3. Open up more funding options and an easing of the higher provisioning norms the real estate sector is subject to.

Executive director of DLF , Rajeev Talwar says “ECB tied down to projects with a lock in period should come in because funds coming in must be long term and must be funds tied to projects. Similarly, you could have REIT and realty mutual funds which should be allowed.”

The sector is keen that projects like these, which have been stuck due to either lack of demand or lack of funding, come back on track. To this end, developers are hoping for some stimulus by way of tax exemptions, especially in the affordable housing space - hitting two birds with one stone.

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