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Budget 2013: Luxury homes to become more expensive

Luxury homes for the rich would become more expensive after the finance minister today reduced the abatement on service taxavailed by real estate developers for homes and flats a bove 2,000 sq ft or costing Rs 1 crore and above to 70% from 75% earlier.

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The impact will be amplified in Mumbai for almost every buyer of under-construction apartments as the city no more offers any decent size apartment at less than Rs 1 crore, the criteria used for applying the measure.

The rate of abatement or deduction is used in calculation of service tax to be paid by the developer. Reduction in abatement will result in higher input cost that will be considered for calculation of service tax.

"Buyers in tier II and III cities will not be affected much as there are not many projects falling in category and therefore the definition of luxury housing is apt for those cities. However, for metros like Mumbai and Delhi, even the basic housing cost is Rs 1 crore and this proposal will affect almost every buyer here," said Anuj Puri, chairman, Jones Lang LaSalle India.

The total value of luxury homes, in 182 luxury residential projects offering 25,570 units across the top seven cities of NCR-Delhi, Mumbai, Bangalore, Chennai, Hyderabad, Pune and Kolkata, launched between 2008-2012 was around $30 billion, said a recent Jones Lang LaSalle India report.

Developers also seem to be ready to pass on the impact of higher service tax onto consumers who will in turn pay more to buyer these houses.

"Reduction in the rate of abatement will make homes upward of Rs 1 core more expensive for home buyers as the tax out go will go up. But the number of people who will be affected will be few as there are not many home buyers in this segment. These higher tax out go will be passed on to the home buyers," said Venkat K Narayana, CFO of Bangalore-based real estate firm Prestige Estates Projects.