By Ruma Dubey

After the Budget was announced, everyone heaved a sigh of relief. Pranab Mukherjee had achieved the impossible feat of giving everyone the feelingof having gained something, no one was really complaing too much. But once the fine print came out and people poured though it, was evident that the FM had done a fine balancing act and everything was not as hunky dory as it was made out to be.

The realty sector especially. The sops for the sector were immense yet there was once clause which has ruffled feather. So if you have not yet bought that dream house of yours because you find the prices still high, well, your wait might get unless as that dream home just got more unaffordable. The FM has imposed a service tax on the sector. The Budget proposes to tax construction as a service if the entire payment for the property is paid before completion of construction. The tax will be levied at the rate of 10% on 33% of the price of the apartment. The balance 67% will not come under tax.

What this means is if you are buying a house worth Rs.50,00,000/-, you will be shelling out a service tax of Rs.1,65,000/- and mind you, this is over and above the already existing property tax and stamp duty which the buyer has to pay. If we are looking at the affordable housing sector where the FM has laid a lot of stress on and has increased allocation for slum rehabilitation the houses may not be as affordable as they seem to be. Post this service tax, a 1 BHK worth Rs.25,00,000/- in Mumbai will attract a service tax of Rs.82,500/-.

That’s not all, the FM has paid attention to the location of the flats you buy too, the better the view from your balcony, higher the price you pay. So if you have paid extra to the builder to buy a flat facing the swimming pool, you may have to shell even more on account of this service tax. So the premium a builder charges for a preferred house is now under the tax ambit.

Though the FM has stated that this tax has to be borne by the builder, surely no builder is out doing charity. He will pay to the government only after passing on the cost to the consumer. Apart from this service tax, cement and steel prices are also set to soar. Meaning again, the builder will pass on this increased cost to the consumer. So the affordable house which you thought you could afford, just got unaffordable.

Another negative for the sector is a levy of service tax on office rentals, though this was earlier stayed by the court, the FM is trying to revive it by making it retrospective from 1^st June,2007. The rentals in Mumbai are as such much higher than anywhere in India and ranks amongst the top 5 in the world. Hence, if this service tax gets imposed, the rentals might also shoot through the roof.

So what happens to the realty stocks? This imposition of the service tax is definitely not good for the sector. There may be an initial drop in buying but if a person needs a house, he needs a house. Ultimately, people will end up paying higher. In the long run, this service tax doesn’t mar the outlook for the realty stocks.