New Delhi

Home prices will increase by about 2.5 percent with the implementation of service tax on the residential segment with effect from July 07, a leading property consultant said. “The implementation of service tax on residential properties will result in an increase in the price of homes for end-consumers. Developers will justifiably be unwilling to absorb this new tax burden and naturally pass it onto the buyers,” Jones Lang LaSalle Meghraj senior vicepresident for capital markets Gautam Hora said.

“The increase would be to the tune of 2.58 percent. Following this, overall demand and sales of residential properties will take a significant hit in all cities,” Hora added. In the budget 2010-11, finance minister Pranab Mukherjee had brought in real estate complexes under the ambit of service tax, unless the entire consideration for the property is paid after completion of construction. The finance ministry officials later clarified that service tax would be imposed on 33 per cent of the total sale price as there is an abatement of 67 percent for input cost.

While replying to the debate on the Finance Bill in Parliament, Mukherjee increased the rate of abatement from 67 to 75 percent of the gross value where such value includes the value of the land constructed upon. Hora of JLLM noted that the rise is enough to increase the unaffordability quotient of homes.

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