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Urban property prices to pinch next?
Wed, 11 Apr Pre-Open

Food, clothing and shelter are the basic needs for a human being. Blame the inflation pinch, an average Indian seems to be losing affordability of all the three. If you thought the budget was a little harsh due to increase in excise and service tax, this might just be the beginning. To achieve the set growth targets, we need infrastructure and funds and the government and associated ministries seem to be trying every possible option to serve that purpose. As per a latest development, property taxes could see a jump.

The proposal from the urban development ministry to increase taxes aims to finance urban infrastructure which is estimated to need funds worth Rs 400 - 500 bn over the next 20 years. However, the blow has been blunted as the taxes will be applicable to properties given for rent rather than self-occupied units. Nonetheless, in this era of mass urbanization, it will be the common man bearing the brunt.

Infact, in Mumbai, which bears the reputation of country's most expensive property markets, the risk of taxes shooting up is very palpable. Post the 5% stamp duty, a hike in building input costs and service tax hike on property transactions imposed in the recent budget, there is a buzz of using market price as a base to calculate property tax (currently based on rent). What makes it worse is that it is expected to be introduced with retrospective effect from April 2010. No wonder the property transactions have declined by 14% in the first quarter in Greater Mumbai. But what is surprising is that this is not being reflected in home prices that are only going up. The reasons are not too hard to guess. It is the uneven distribution of wealth in the country. While a common man is almost denied this basic necessity, speculators seem to be hoarding the properties disturbing the demand supply dynamics leading to spiraling prices.

While we can't deny the need of the government to arrange funds to support its infrastructure growth targets, it is high time it comes up with innovative ways to spare the common class and avoid hoarding and speculating tendencies. One such way could be to introduce a vacant land tax to avoid property hoarding. However, such steps will lose their impact if not implemented on time. Hope the government is listening.

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