The State Budget has won the support of the builders. SHYAMA RAJAGOPAL says the Union Budget proposals, such as the one on service tax, however, have left them worried.

Lowering of stamp duty and registration fee for flats is definitely a most welcome step, providing the required impetus for development of the real estate and construction sectors, says Abdul Azeez, chairman of the Confederation of Real Estate Developers of India (Kerala) reacting to the State Budget proposals presented by Finance Minister T.M. Thomas Isaac in the Assembly on Friday.

Lowering of the stamp duty has been a long-standing demand of the sector as the State has one of the highest rates of this, he says.

People will benefit much if the duty is still lowered, but a beginning has been made. Another important aspect of the budget is the lowering of the registration fee for apartments.

While people who build houses on their own land do not have to pay the registration fee, buyers of flats have to pay a fee when these are registered in their name.

The cost of a flat fixed by the builder includes the cost of registering the land. Hence, flat owners pay for land as well as getting a flat built.

However, the builders here say the Union Budget 2010, presented by Union Finance Minister in the Lok Sabha on February has, at best, tried to dampen the recovery of the construction sector, which has been trying to find its way up from a worldwide slump. The service tax on houses will sharply increase the price, believe the builders.

Various components responsible for the cost of a house are land, raw material, labour and service. The last part is highly variable — it basically comprises a builder's branding. And these services do not come into play until the property is handed over.

The proposal will adversely affect the sector as flats will become dearer, Mr. Azeez says.

The Union Budget has ignored the housing sector. The only consolation provided is a one per cent subsidy on a Rs.10-lakh loan for a house which does not cost more than Rs.20 lakh. These measures do not provide for affordable housing, he says.

It is incomplete houses that attract the service tax. But the construction sector does not function in such a manner that the clients pick up completed houses. Usually, customers prefer booking projects right when the project begins.

The builders get their payment part by part as the banks release the funds in each stage of the project.

Various banks that have offered attractive loan schemes are also likely to be affected as a result. As most houses are sold while construction is on, it will increase the cost of incomplete projects as a service tax along with a surcharge will be added into the cost.

While the Union Budget, with the service tax, aims at fast completion of projects since many get delayed, especially with the recession, the Finance Minister has, perhaps, looked at builders inviting customers with completed projects.

Housing has been affected a lot in the last couple of years with real estate and construction sector suddenly finding customers vanishing.

With this, the banks had also become wary of lending. Builders fear that the service tax, along with an absence of bank support for the sector, will adversely affect the sector across the country.

‘Larger cut needed'

The proposed stamp duty rates are not enough to sustain the demands of the construction sector, says M.D. Jairaj, president of Kerala Builders Association. For really moving the market, it needs to be lowered to 4-5 per cent range.

Since the government is assured of this tax collection, further lowering will attract more people into buying flats rather than going in for individual housing.

As land is scarce in the State, it will be better if one can accommodate more people in a limited area and have better infrastructure than individual houses.