Consumer’s Perspective of the Budget 2012-13

Real estate is one of the fastest growing sectors in India with an average growth of 14% annually. According to the market report the housing sector is growing at an average of 34% annually and the hospitality industry has witnessed a growth of 10-15% last year. With this tremendous growth, Real estate had a lot of expectations from the budget 2012-2013 like granting it the status of industry, increase in deduction of interest on home loans, implementation of the revised DTC, increase in interest subvention etc. But if you go in detail you will find that budget 2012-2013 holds very little for the real estate sector.

Real estate contributes 6.5% to the GDP and expected the budget to address the prevailing issues, but on the contrary hike in excise duty and service tax might further the problems. Moreover, a partial attempt is been made to make affordable housing available to a larger section of the society. A survey by a real estate service has concluded that consumers have shown a great dissatisfaction with the budget 2012-2013.

According to a Real-Estate services survey, 21% of the consumers want the real-estate to get industry status, since this will pound corporate culture and discipline, pull towards large companies, will encourage investment and these improvements will benefit the consumer in the end by improving the overall economy. The private survey also discloses that extension for one year of 1% interest subvention is not enough for the consumers since 23% of the buyers are looking for increase in tax exemption limit.

There is an announcement of the exemption of service tax on low cost mass housing up to an area of 60 sq. mtr. per unit. But, the consumer is not satisfied since rising interest rates have already made the housing unaffordable and the announcement of increase in excise duty and service tax in the budget 2012-2013 will increase the prices further. Since, 70% of the building cost is the cost of construction and increase in excise duty will have a direct impact on the construction cost since about 250 ancillary industries such as cement, steel, brick, timber, building material etc are dependent on the construction industry. And rest 30% of the building cost will also increase due to the 2% hike in service tax. A unit increase in the expenditure in these sectors will have a multiplier effect on the real estate price. For a home buyer, the impact of increase in service tax would be about Rs 55,000-75,000 on a Rs. 50 lakhs home purchase.

The only policy welcomed by the consumers is opening up the way for External Commercial Borrowing (ECB) in the low cost affordable housing. This will bring a relief to the estate developers who are facing liquidity crunch. More developers are expected to launch affordable housing as they will be getting money on much lesser interest rates than the domestic banks and private equity funds and will satisfy a big segment of consumers who demand affordable housings.

Also Read:

Union Budget 2012 Impact on Real Estate in India

Union Budget 2011 For Homemakers

BBMP Bangalore Property Tax 2012-13