That’s not exactly how the ratio deal works. See, earlier the project duty was 3.8% of the construction cost. This percentage was 1.8% of construction cost when a colony was being developed. But now there has been a percentage raise to 5.8%. The construction cost has also risen by 50%. So you can see how there has been a steep increase in the total cost that has to be paid by the builders. So they can do two things, either stop the project or increase the cost of the building. This kind of rising price is not conducive to a healthy real estate market at all.
Actually, you might be interested to know that even though the budget is quite pro-real estate for the rest of the country, it might have some dire consequences here in Indore (in fact in the whole of MP) because of some contradictory state laws. One of the main issues is that of the ratio deal which is obstructing the growth of real estate sector here in Indore. For example if the total construction cost is Rs 1000, and the concession on the steel and the ceramic tiles amounts to just Rs 20, then that’s not much, is it?
I don’t know about Indore specifically, but nationally, there is a lot of buzz around the fact that now the FDI is introduced in the housing sector, it is going to help a lot in cutting down costs of housing nationally. The new budget is offering a percentage concession on the entry tax for steel and on the VAT for ceramic tiles. This is quite impressive, given that the new government had only 46 days to prepare this new budget. I also think that this budget is conducive to providing a home to everyone by the year 2020.