Industry & Economy
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Real Estate & Construction
Commercial space may cost 12% more
R. Balaji
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Service tax levied on rent adds to increasing costs
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Chennai
March 1
The cost of commercial space is set to increase by more than 12 per cent across the country once the service tax levied on rent for commercial space takes effect, say real estate consultants and developers.
The Finance Minister, Mr P. Chidambaram, in his Budget speech introduced service tax on renting immovable property for use in commerce or business.
According to Mr Ramesh Nair, Local Director & South India Head of Markets, Jones Lang LaSalle India, international property consultants, the service tax adds to the increasing costs for the `corporate occupier.' Over the last two years, cost of commercial space has been on the increase and now they are faced with an additional 12 per cent.
With more than 80 per cent of space in the hands of the IT and BPO companies, that sector will face most of the increase, he said.
Those familiar with the real estate business say the announcement will drive up costs for all businesses, including retailers, manufacturers or information technology companies. This in a place where office space is among the most expensive in the world, they say.
According to international property consultants, Cushman and Wakefield, introduction of service tax for commercial rent will increase the pressure on developer and the tenants. The proposed tax will be a pass-through cost by a hike in rental space and add to the property prices, as the end-user demand remains strong.
Mr K. Vaitheeswaran, a Chennai-based advocate and tax consultant, said the announcement will have a `tremendous impact' on factories, buildings and land rented by any business whether retailer or information technology company. The rents would go up by 12.36 per cent (including 3 per cent education cess). It would hurt those not having the provision to claim Cenvat credit.
Mr R. Murugesan, COO, Shriram Properties, said that such a tax would have a huge impact on costs in the near term.
Office Spaces of the World, a study by Cushman & Wakefield, recently said that rent for office space in Chennai, Mumbai, New Delhi and Pune witnessed some of the steepest increases in the world.
The report on office occupancy costs says that in 2007 Mumbai took the fifth spot as the most expensive office location. London is the most expensive followed by Tokyo, Hong Kong and Paris. Of the top 10 locations that showed the highest increases in rent in 2007 over 2006 eight are in India, the other two are Abu Dhabi and Calgary, Canada.
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