Gloom on home front

Budget 2007 doesn’t hold much joy for the real estate sector. The imposition of service tax on rental from commercial property was a bolt from the blue. Property owners are expected to pass on the burden of this tax to occupiers, thus increasing the occupancy cost of industry. Said Kumar Gera, chairman, Confederation of Real Estate Developers Association of India (CREDAI): “The success of India’s IT-ITeS industry in particular depends on low cost. By pushing up occupancy cost, this tax will erode this industry’s competitiveness”. According to Punit Beriwala, managing director, Vipul Group: “This tax could affect the fast-growing retail sector as well.” Added Prodipto Sen, vice-president (marketing), Alpha G Corp: “It could lead to unscrupulous elements declaring lower rental rates, as happens in sales transactions, with sellers stating a lower sale price to save on stamp duty.”

The budget also denies tax exemption to Venture Capital Funds (VCF) in all industries except a few high-tech ones. According to Anuj Puri, managing director, Trammell Crow Meghraj: “There is now far less incentive to invest in real estate-related VCFs. This is a serious limitation considering that India has not yet adopted REITS as vehicles for investment in real estate.”