The real estate incentives announced in Thursday's Budget will not only be of no use to homebuyers in Mumbai, but will also create more problems as the houses will cost more due to 1% tax on transfer of property, say experts. To make matters worse, even the service tax on sale of houses costing above Rs. 1 crore will increase.
According to both builders and homebuyers, incentives like additional deduction of housing loan interest won't help buyers in Mumbai as real estate rates are exorbitant in the city. On the other hand, 1% tax on transfer of property could further increase cost of houses.
"There is no vision in the Budget at all. It has only made things difficult and costlier for us," said Sunil Mantri, chairman, Indian Merchants Chamber (real estate committee).
"We were expecting some relief in service tax or interest rates, which have been overlooked completely," he added.
The major grouse has been levying of tax deducted at source (TDS) of 1% on properties worth above Rs. 50 lakh.
"Even a basic 1 BHK flat in distant suburbs costs more than Rs50 lakh, and hence most come under this net," said Manju Yagnik, vice-chairperson, Nahar Group.
This means a buyer will have to pay Rs. 60,000 to Rs. 70,000 more on purchase of 1 BHK flat that costs Rs. 60 to Rs. 70 lakh in Mumbai. A 2 BHK flat costs Rs. 1 crore or more, which means buyers would end up paying more than Rs. 1 lakh in terms of taxes.
According to Sanjay Dutt, executive managing director, Cushman and Wakefield, a real estate consultancy firm, such steps would only result in hike in prices.
"Sellers would pass on the burden to the buyers and properties would become costlier," said Dutt.
The reduction of abatement to 70% from 75% for flats above Rs1 crore has resulted in the service tax being increased to 3.70% from 3.09%.
The sop of additional interest benefit of Rs. 1 lakh on first-time loan up to Rs. 25 lakh also found no takers as there are hardly any flats within this amount.
Builders rue that thee finance minister has lost an opportunity to revive the sector, which is reeling under a slowdown.