The Government’s decision to reduce GST on under-construction properties from 12 percent to 5 percent (without ITC) is expected to boost demand for such units across the country. Nominal 1 percent GST on affordable homes will induce more sales in the coming quarters.
After several delays, the Central Government has slashed the Goods and Services Tax (GST) rate on under-construction properties to five percent without input tax credit (ITC) benefit. Till now, such properties levy 12 percent GST coupled with ITC. Moreover, the tax rate has been rationalised for affordable houses as well. Now, all affordable housing units will attract only 1 percent GST minus ITC benefits. Until now, purchase of affordable housing units used to attract an eight percent GST.
The recent move is expected to boost the housing demand for under-construction properties. Post demonetisation, demand for under-construction units suffered a setback, which resulted in improved demand for ready-to-move units. Slash in GST rate will certainly help boost the real estate sector in 2019. Welcoming the move, Parth Mehta, Managing Director, Paradigm Realty, has shared that reduction in the rate of GST from 12 percent with ITC on payments made for under-construction flats to five percent without ITC along with 1 percent GST on affordable housing segment is only a buyer-centric move by the Central Government. However, the developers will be burdened with GST payments to vendors, suppliers, agencies and contractors as this will increase the cost further amidst the already shrinking margin in business due to dynamic policies implemented by the Government. The input tax credit benefit will have to continue or else it will put the entire tax burden on developers hitting the real estate down further. Developers have already got impacted due to NBFC crisis too apart from dynamic policies implemented in the last three years.
It has been observed that there are lakhs of unsold inventory across the country, hampering the overall scenario of the realty market. A total of 5.88 lakh under-construction properties are lying unsold in the top seven cities in India. Of these, about 34 percent are priced below Rs 40 lakh. The GST rate cut will translate more sales in homes falling within Rs 45 lakh. Unquestionably, it will be a win-win situation for both builders and homebuyers.
The revised GST rate will throw a maximum benefit in the affordable housing segment. However, for the premium or luxury housing segment, this decision would not be considered as a game-changer, translating to vastly improved housing sales. But, a marginal rise in sales could be witnessed. Amit B Wadhwani, Co-Founder, Sai estate Consultants Chembur Pvt Ltd, opines, "The revised GST rates will be an added boost for homebuyer sentiments across the sector especially in concurrence with the recent budget announcement and alteration in the RBI repo rate. Rationalising the GST for affordable houses is a level-headed move, which will further enhance the purchasing power of buyers in alignment and will help to achieve the “Housing For All” mission. The move will aid the Lower Income Groups (LIG) and Economically Weaker Sections (EWS) of the society.
Cash-strapped builders would be most benefitted, at least in the short-term as more homebuyers who had been delaying their buying decisions can now take the plunge due to an additional incentive.
Slash of GST rate is hinting for a stronger revival for the real estate sector in the ensuing quarters. The reduced tax rate, though nominal, will improve builders’ liquidity issues to some extent. Additional tax benefits announced during the recent interim budget 2019-20 would create a positive environment for all the stakeholders.
Here is what industry experts opine on the recent announcement:
Chintan Sheth, Director, Ashwin Sheth Group
The GST rate cut to five percent on under-construction properties will significantly help in the revival of the real estate sector. While the Government has taken several initiatives to boost the market, more sops and reforms are required and rationalisation of GST is a step in the right direction. With the reduced prices that will benefit homebuyers, demand will improve and attract investments from NRIs, first-time homebuyers, and the fence-sitters. It is advisable to purchase a home now.
Rohit Gera, Managing Director, Gera Developments
The reduction of GST for under-construction homes is merely a transfer of the tax from the customer to the developer since the input tax credit is done away with. This move will be price inflationary and the benefit of reduction of GST will be temporary. The entire concept of GST was to eliminate double taxation. This move takes us back to the old regime. The input tax credit system forced smaller contractors and vendors into the tax net and into the formal system. Eliminating the ITC reverses all the gains made in bringing the smaller service providers into the system and incentivises black money transactions.
Ashok Mohanani, Chairman, EKTA World and Vice-President, NAREDCO West
The expected cut down in GST rates for under-construction properties to five percent will be a great push for the sector. It will be seen as yet another revolutionary decision by the Government, bring in a wave of relief to the buyers. Homebuyers can once again look/opt to invest in properties. Moreover, it will assist developers in clearing off their unsold stock. On the other end, the decision to charge an additional 1 percent stamp duty surcharge on the value of a property may act as a mild dampener to roaring spirits.
Samyak Jain, Director, Siddha Group
Knowing that the realty sector is on its way to recovery, the GST rate cut on under-construction properties from 12 percent to five percent and on affordable homes from 8 percent to 1 percent will boost the market. This will be further complemented by the tax amendments announced in the budget to lessen the burden on the taxpayers who are earning up to 5 lakh per annum making home buying easy for the first time buyers. The rate slash will attract a large number of investors along with end users and shape the sector positively in the near future.
Pritam Chivukula, Co-Founder and Director, Tridhaatu Realty & Infra Pvt Ltd
The GST council’s decision to reduce GST to five percent for under-construction flats and to nominal 1 percent for affordable housing segment augers well for the real estate industry. Homebuyers will enjoy a lower transaction cost and thus making his dream house cheaper.
Tushad Dubash, Director, Duville Estates
GST has been one of the key factors in the homebuyer’s decision-making process. The announcement with regards to the GST rate cut on under-construction properties to five percent is commendable as it will give a much-needed boost to the real estate sector. As this move reduces the disparity with ready-possession homes, we hope we will witness many first-time homebuyers and NRIs looking to invest in under-construction homes.
Amit Ruparel, Managing Director, Ruparel Realty
We welcome GST council’s timely decision to slash the rates on under-construction residential properties, making the effective tax rate five percent for the normal category and nominal 1 percent for the affordable housing category. This will immensely help to boost demand on under-construction residential properties, and also simplify tax structure and compliance for builders. However, the industry was also hoping for clarity on the taxes to be paid on raw materials like cement and steel against the final tax liability on under-construction properties.
Rajeev Piramal, Vice Chairman & Managing Director, Peninsula Land Ltd
The GST council’s decision is a win-win for both home buyers as well as the real estate sector. The Government’s initiative to provide affordable housing for all has got another shot in the arm. With GST rates being slashed from 8 percent to just 1 percent (without input tax credit), affordable housing will now be - even more affordable.
By reducing the 12 percent GST rate to five percent for under-construction homes (which do not fall under the affordable segment category), there’s a reason for the middle class to rejoice as well. From a developer’s point of view, this will translate into more people buying under-construction homes, thereby injecting some much needed liquidity when developers need it most.
Om Ahuja, COO, Residential Business, K Raheja Corp
The GST rate cut will provide respite to the overall real estate market. However, this will be a momentary infusion of notional positive sentiment. While the under-construction segment will largely benefit from this, with input tax credit benefit developers losing the same, prices of the apartment will start looking northwards considering developers lose the input tax credit.
T Chitty Babu, Chairman and CEO, Akshaya Pvt Ltd
We welcome the Government’s decision to revise the GST rates for affordable housing segment to 1 percent. The change is certainly going to improve the buyer sentiments. Also, the change in GST rates of under-construction properties to five percent is going to be a game-changing decision for the homebuyers. It will boost the housing sales in this segment and attract a slew of investments in the sector. We can witness a tremendous turn around in the coming quarters as the homebuyers who were holding off their purchase decisions, will now be able to take the advantage of both the recent repo rate cut and the revised GST structure.
Rohit Poddar, Managing Director-Poddar Housing and Development Ltd
This reduction in the GST rate shows the pro-activeness of the Government on addressing the issues the real estate sector is going through since past few months. The GST rationalization for under-construction properties is a comprehensive move which will help the developers in liquidating their unsold inventories which will be an added boost for the sector and the consumers as well.
Manju Yagnik, Vice Chairperson, Nahar Group
To ensure benefit reaches low-income buyers, the GST council has rightly considered only 1 percent GST on affordable housing. Flats in the higher unaffordable category are going to get more accessible due to the five percent tax levy on them. However, not extending the benefit of input tax credit (ITC) to developers might increase price of apartments for low and middle-income groups in most cities.
Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. 99acres does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.