Following the interest rate hike by a few leading banks and the government proposal to slap service tax on the realty sector, the country's largest real estate developer DLF on Monday said properties would turn dearer as developers would have to pass on the service tax burden to end-users.
"If the signal from the bank and government is to raise the price, then why prices will not go up? That means the economy is to ready take a price hike. It will be wrong to assume that developers should not raise prices. How can you have two contradictory signals?" DLF group executive director Rajeev Talwar said.
While a few private sector lenders, including ICICI Bank and HDFC Bank, recently increased home loan rates by up to 100 basis points, the Budget proposed to impose service tax on the realty sector both on commercial rentals as well as on sale of under-construction housing units.
The service tax would come to be about 3.5 per cent of the cost of the apartment that includes the value of the land and also the cost of construction, realty body Credai said. "Which tax has been absorbed in our country? It has only been passed through. Somewhere the new levy must be adjusted, how can you hope that the new levy will be adjusted and yet there will be no increase?" Talwar asked.
However, Talwar did not quantify the likely jump in the prices, saying, "it will vary from location to location, project to project."
The levying of service tax is only going to hit the consumers as they have to bear the burden, Talwar of DLF said, adding the increase in interest rate and imposition of service tax are just the opposite of what a consumer would like.
Since the levy of tax is across the board, it will hit all the segments of the real estate including commercial and retail, he added.
