Real estate prices likely to go up by 3-4%

The real estate prices are expected to climb up by an average of 3-4 per cent on the back of a 4 per cent excise duty hike on steel and 10 per cent service tax on commercial/industrial construction activities.

While the residential projects could see a hike of about 2 per cent, commercial and infrastructural projects may see a higher rise.

"For a residential project, the requirement of steel is around 2.5 kg per sq foot amounting to Rs 65 per sq foot. So, a hike of 4 per cent on excise duty will inflate the prices to nearly Rs 6 to Rs 13 subject to the nature of projects. For a multistory building, where the requirement of steel is higher at 4.5 kg per sq ft, the prices may go scale up further. Overall on project specifications, the developers will have to hike prices by 3 per cent," Ashok Gehlot, adviser to the Construction Federation of India, said.

Infrastructural projects will also see a cost escalation with greater use of steel. "For some of our projects, steel makes up about 40 per cent of the components. Besides, the consultancy charges will go up due to hike of service tax to 10 per cent. So, we are looking at quoting higher prices for our future projects, which will be about 4 per cent higher," S L Langer, vice-president of Larsen & Toubro said.

"However, we will also like to keep the quotes competitive with other players by cutting cost in other areas," he added.

But, developers and the real estate consultants forecast a marginal change in prices, as they say the prices are determined by the demand and supply and in most cases, the hike in steel prices and other components are factored in.

Delhi-based developers like DLF, Ansal and Parsvnath say that even as the cost of construction will go up with excise duty hike on steel, it will lead to a marginal hike of just 2 per cent of residential projects in the short- to medium-term.

"The hike in prices is mostly due to increased demand and changes in cost of construction are usually factored in. We are working out the impact of duty hike, but do not see an increase of more than 2 per cent," DLF spokesperson said.

Meanwhile, the Confederation of Real Estate Developers in India (CREDAI) said with reduction in customs duty on non-alloy steel and other raw materials like graphite, asbestos, mica and gypsum would counteract the hike in construction cost, which was why the hike in price would not be more than 2 to 3 per cent.

Budget impact

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• The hike in the real estate prices is due to a 4 per cent excise duty hike on steel and 10 per cent service tax on commercial/industrial construction activities

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• The residential projects could see a hike of about 2 per cent, commercial and infrastructural projects may see a higher rise

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• For a residential project, the requirement of steel is around 2.5 kg per sq foot amounting to Rs 65 per sq foot. A hike of 4 per cent on excise duty will inflate the prices to nearly Rs 6 to Rs 13 subject to the nature of projects