There
has been a prolonged flip flop in progress with regards to the VAT (Value Added
Tax) issue, and the matter was sub judice for quite a while.
Earlier,
VAT was proposed to be at 5 per cent of the value of residential properties.
But was lowered to 1 per cent and has now been fixed at 5 per cent after all. This will have an obvious negative
effect on buyers, because developers are bound to pass the added cost on to
them.
In
cities like Mumbai, this definitely does not spell good news in a real estate scenario
which is already defined by high inventory pile-ups & reduced sales.
On
the one hand, the market was awaiting new policies that would aim to boost
flagging home sales.
However,
the Government’s need to ramp up its fiscal deficit by generating additional
revenue seems to have gained the upper hand.
 |
| Mr. Subhankar Mitra, JLL India |
Buyers
who had purchased their residential properties in 2006 would have taken
possession of their houses by now and would not be affected.
However,
those who had made their purchases in under-construction projects in 2010 and
have not yet received possession will have to pay 5 per cent extra on the final amount.
In
some cases, developers have protected their customers from possible VAT induced
price escalations by specific clauses in the agreements. But such incidences
are exceptions rather than the rule.
In
our view, this ruling will probably lead to a higher degree of disputes between
buyers and developers. But will not necessarily result in cancellations.
In
certain areas, there may be viable alternatives to new constructions available
on the resale properties market. If such options exist, buyers can definitely
consider those options.
About
the Author...!
Mr.
Subhankar Mitra is Head – Strategic
Consulting (West) at Jones Lang LaSalle India
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