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Understanding the Rise & Rise of Real Estate Prices in India - Part III

Industry experts say that with India Inc expanding into the country's major metros, the upward trend of rentals will be witnessed primarily in and around existing and upcoming business districts, due to huge demand from top and middle level executives with transferable jobs. With sale values going sky high and home loan interest rates being revised upwards, many potential home buyers have currently put off plans to buy, preferring rental housing for now. Landlords on the other hand are making the best use of this situation,

The builders' bid for the land to match the reserve price of the land is decided by the development authority. If the land is expensive, it will have a cascading effect on the price of the houses as well. The government recently hiked the Cash Reserve Ratio (CRR), leading to the increase in the cost of the house. The rising construction cost and land prices will ultimately be passed on to the end user. Therefore, we are not able to fulfill the requirement of low cost housing in the country. The real estate sector gives service tax at two stages.

When the builder builds a house, he pays service tax on the bills of architects and those involved in the construction. Now he has to take service tax from those who buy his flats. The builder is treated as a contractor if the customer is buying a house during the period of construction. Besides service tax, the industry pays two types of tax -- VAT and stamp duty -- levied by the state government. So the industry has to bear the load of three types of taxes. Stamp duty rates are inconsistent and exorbitant across the states.

The government should treat housing as a priority sector. Housing is a need and not an industry. A policy will have to be framed integrating suppliers, consumers and municipalities. A big chunk of housing is lying locked. The problem must be addressed at the policy level. This can solve the problem partly. As far as incentives are concerned, adequate incentives are available on home loan.

Rental housing should be promoted. Tax incentives are given and rent control act be made uniform. The landlord will be encouraged to give his house on rent, if he is sure he will get it back after two years. The house owner should get a rebate on the rental income.