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Mumbai realty post-service tax
March, 21st 2013

Ravi Ahuja, Executive Director, Cushman & Wakefield

RESIDENTS of Mumbai wishing to purchase a home will have to wait yet, as the Budget did nothing to alleviate their pains, rather made the dream of owning a residence in Mumbai further distant. Not only does Mumbai have high land costs, but it also is plagued by high labour costs and high taxation levels.

The finance minister announced that the abatement rate offered on service tax for high end properties has been reduced by 5 percent for all residences with a ticket size of above Rs 1 crore or those that have a carpet area of 2,000 sqft or more. Thus the proposed reduction in abatement rates will increase the overall costs for buyers hoping to own a house in the city.

Whilst the city is not really known for its generosity in the sizes of residential units offered, especially since developers usually charge a loading of around 50 percent on an average, henceforth, a 2-BHK apartment of approximately 1,000 sq ft with a capital value of Rs 10,000 per sqft or more, will exceed the stipulated ceiling and buyers will have to shell out more money to buy it.

Capital values across the city well exceed the threshold in most cases and buyers are left with very few options, most of which involve relocating to really distant suburbs in Thane and Navi Mumbai.

Of the total residential launches in Mumbai in 2012, a whopping 61 percent of the units had a ticket size greater than Rs1 crore. This might erroneously lead one to believe that Mumbai witnessed mostly high-end and luxury residential project launches. However, a quick peek at the statistics dispels this as of the 61 percent units commanding a price of more than Rs 1 crore only 27 percent belong to high-end and luxury segment and the remaining 34 percent actually cater to the mid-end segment. The ticket size of Rs 1 crore is too rigid for a market like Mumbai.

While in tier II and tier III cities, purchasing a residence costing above Rs 1 crore might be considered to be catering to the rich, in a city like Mumbai such qualification certainly does not hold water. Middle-class families, which are quite dependant on both husband and wife contributing to buy their dream homes, would be further dealt with a financial blow.

In the past, the finance minister has issued statements wherein he wanted developers to reduce their prices and reduce their unsold inventories and he had also asked banks, which provided funding to developers to put some pressure on developers to do so.

However, while large scale projects facing considerable unsold stock may have witnessed some softening of prices in the form of discounts, by and large the developers in Mumbai had held on to their prices as they felt that their input costs were already too high.

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