A row has broken out in India over a proposed 2.5% service tax on all properties under construction amid concerns about the effect it might have on the countrys recovering residential real estate market.
The Urban Development Ministry wants the tax to be withdrawn despite it winning support when it was announced as part of the 2010/11 Budget. The UDM believes that the new tax will hamper the recovery from the economic slowdown.
According to the Urban Development Minister Jaipal Reddy the property sector is still going through a difficult phase and the service tax could hurt its interests as well as those of the middle class buyers who are needed to boost the industry.
Soaring property prices in Mumbai are believed to be putting buying a house beyond the reach of many people, especially families as all they can afford are one bedroom flats that are not suitable for their needs.
There is concern that greedy developers are hiking prices and while there is more demand in the higher price brackets, these kinds of prices for more normal properties is not sustainable.
Analysts say some developers are adding on extra costs for flowerbeds, viewing decks and clubhouses that are not needed. Then hikes can be up to 50%.
The industry is hoping that the soon to be launched national real estate index will also help the sector as buyers, sellers, developers and analysts get a reliable set of figures. The yet to be finalized real estate price index is expected to be based on property prices in 13 cities.
These will be Greater Mumbai, Chennai, the National Capital Region of Delhi, Bangalore, Hyderabad, Kolkata, Pune, Jaipur, Greater Chandigarh, Ahmedabad, Lucknow, Bhopal and Bhubaneswar.
An expert committee, which was formed by the Reserve Bank in December 2008 for developing the information system on asset pricing, said it needed to track both sale and resale prices as well as the rental sectors on a regular basis.
It will use official data on house rents from the Consumer Price Index (Urban) that is compiled by the Central Statistical Organisation and will supplement bank data through a survey conducted annually so as to ensure the robustness of the data available within the banking system.