Developers warn that property costs are rising in India

News Posted - 2010-04-08

The cost of buying a property prices in India could increase by 12% in 2010 due to the rising cost of construction materials, taxes and rising interest rates, it is claimed.

Cement and steel prices are increasing and this is likely to be passed on directly by developers and a 10% service tax on purchase of apartments will both make buying more costly, according to the Confederation of Real Estate Developers Association of India.

And last week the State Bank of India (SBI), the largest bank in India and one of the leading players in the housing finance market, raised interest rates on home loans. Although the bank will continue with its 8% teaser rate for the first year, it has increased rates for the subsequent years.

‘There is a strong possibility of price hike as factors like service tax, rise of input prices will be passed on to the end users,’ said Raj Menda.

The real estate sector has been badly hit by the recession due to falling demand and repayment pressures. However, the sector is now looking up with some tangible signs of economic revival.

‘There is roughly 6% of the unsold properties lying with real estate developers as of now. In commercial property, there is an oversupply which is expected to be absorbed in the next two years,’ explained Menda.

But he added that banks are still cautious about providing housing loan to consumers and asking for higher collaterals for lending to real estate developers.

But several property deals are being cancelled due to the additional costs being levied by developers, according to Yashwant Dalal, president of the Estate Agents Association of India. He explained that many developers have decided to collect service tax which adds nearly 4% at the time of handing over.

During the pre global downturn property boom many investors bought flats anticipating the rates would go up further and just paid the builder the value of the flat, he explained. ‘The agreement at that time did not mention anything about the service tax or the value added tax. Now with property prices increasing past their pre-2008 peak, when the investors try to sell these flats, the developer insists on collecting the service tax and the 1% VAT. They also have to pay the maintenance charges on the flat if it has not been paid yet. The buyer finds all these additional charges too costly to bear,’ he added.

Delhi is the most popular place to buy a property, according to a survey. Its Realty Trends 2010 report shows that 34% want to buy in Delhi followed by 28% favouring Mumbai and 11% opting Bangalore and Hyderabad.

The survey also reveals that the realty sector in 2010 is going to be driven by end user. Due to the recession and fluctuating property prices, property seekers shied away from making a property purchase last year, but with an improving economy and slightly stable property prices, seekers are ready to jump into the market this year.

Most of the buyers who are interested in buying a house this year want it to live in with 67% buying for this reason. Some 23% are looking for property as a long term investment while 10% are seeking a short term investment, it also found.

Source: http://www.propertywire.com 6/4/10