The additional burden of service tax on builder flats has become the latest irritant in the field of housing finance.
People seeking home loans are now required to pay a hefty service tax in addition to the cost of the land and building, stamp duty and registration charges.
While the banks are flush with funds, they seem cagey in financing the extra bit, saying it’s a risky proposition.
Banks usually lend only about 85 per cent of the total cost of a house. If a house is valued at Rs 20 lakh, the stamp duty and registration fees push up the cost to Rs 23 lakhs. An 85 per cent loan on that amount works out to Rs 19.5 lakh, which gives a final loan-to-cost ratio of 97 per cent of the value of the house.
Once the 12 per cent service task is added to the cost of the house, the final price works out to nearly Rs 25.5 lakh. An 85 per cent loan on that amounts to nearly Rs 21.5 lakh, or around 109 per cent of the property’s actual value.
Banks are worried about upgrading the loans to provide maximum possible finance to people buying homes, but that increases the risk of loan defaults. The good news is that the Finance Ministry is looking into the matter to see whether the service tax pressure can be eased a bit, and customers can only hope for better days ahead.
Transfer Money Overseas
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