Impact of GST rate cut on Mumbai real estate

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GST rate cut

While the industry has reacted with caution on the GST rate cut on under-construction properties, experts opine that the move will indeed benefit the affordable home segment. With slashed GST rates, the developers in Mumbai expect to unload the high unsold inventory that had been piled up due to the erstwhile GST rates prevalent in real estate.

As per reports, the number of unsold inventory in Mumbai stood at 1.3 lakh units in December 2018. Though there had been a significant decline in the number as compared to the figures of 2017, the poor demand for under-construction units continued to confound the residential segment across the city. But, with the reduction in the GST rates on under-construction houses from 12 percent to five percent and from eight percent to one percent in case of affordable housing, the developers across the city are looking forward to an upsurge in the velocity of sales along with a considerable decline in their unsold inventory levels in the next 1.5-2 years.

“The estimated change in the total pay-outs is expected to be between 6-7 percent across both affordable and non-affordable segments. The reduced pay-outs will help to boost the sales velocity and will also be crucial in addressing the challenges of unsold inventory in the market,” says Shishir Baijal, Chairman and Managing Director, Knight Frank India.

It has been found that the outstanding inventory in the Mumbai Metropolitan Region (MMR) alone accounts for nearly 37 percent of the total unsold units across the major cities of India. Aggressive launches post 2015 have contributed significantly to the residential stock in MMR. The sales, however, suffered post the radical policy moves such as demonetisation, implementation of Real Estate (Regulation and Development) Act (RERA) and hefty GST liabilities.

However, the piled-up stock is likely to soon witness increased absorption owing to factors such as reduction in the GST rates along with the budget presented by the Maharashtra government which focuses predominantly on the enhancement of overall infrastructure, connectivity, and transportation across the State. “GST rate cut coupled with the promise of better connectivity through public transport such as railways, highways, and the proposed metro lines as mentioned in the State’s Budget that has been announced recently, will definitely escalate the demand for residential units in areas beyond MMR such as Mira road and further towards Kalyan. The number of unsold inventory in the region is likely to trim down to a further extent,” opines Amit Wadhwani, Co-founder, Sai Estate Consultants, Mumbai

Is it the right time to invest in Mumbai realty?

According to a recent survey conducted by Knight Frank, Mumbai has witnessed maximum improvement in the affordability index since 2010. The ideal affordability that has been identified is 4.5 times the average annual household income in a given city. As per the report, Mumbai, with a ratio of seven has witnessed the sharpest improvement among seven other major cities of India.

City

Home price to income ratio

Change in average unit size of housing stock since 2011

In percentage

Annual Sales in Units

2010

2018

2010

2018

Mumbai

11

7

-24

         108,680

63,893

NCR

6

5

-8

         117,559

40,643

Bengaluru

6

4

-18

            28,318

43,775

Pune

5

3

-24

            39,881

33,521

Chennai

5

4

-6

            19,936

15,986

Hyderabad

6

5

+4

            15,021

15,591

Kolkata

6

3

-17

            12,664

12,731

Ahmedabad

4

3

+7

            19,424

16,188

                                                     Source: Knight Frank

According to Parth Mehta, Managing Director, Paradigm Realty, “Despite different factors that have hit the real estate market in the past few years, the upsurge in real disposable household income in comparison to real house price growth has intensified affordability in Mumbai. Government policies including special schemes for the first-time homebuyers, Credit-Linked-Subsidy-Scheme offering benefits under the Pradhan Mantri Awas Yojana (PMAY), and the trend of micro homes  with 12 percent reduction in the apartment sizes will continue to help the real estate market bounce back. This will increase the affordability for homebuyers making the vision of “Housing for All” realistic”.

While the buyer sentiment, post the GST announcement seems to be high, some of the experts suggest that due to the exclusion of Input Tax Credit (ITC), developer’s profit margins will minimalise, resulting in a growth in property prices. In conversation with 99acres.com, Amit Desai, Owner, Propinvest realty, Mumbai, shares, “There is huge unsold inventory across the micro-markets of Mumbai and Thane. The decision of the Government to reduce the GST rates on under-construction properties has helped immensely to boost the buyer sentiment across the city, especially in affordable markets such as Badlapur, Kalyan, Diva, and other micro-markets beyond Thane where residential units are priced below Rs 45 lakh. However, the elimination of Input Tax Credit (ITC) is likely to adversely affect the profitability of the developers because of which the property prices may increase for the end-users. We expect that the next three-four months are going to witness the maximum number of property transactions across the city.”

Keeping in mind all the factors as mentioned above, it can be anticipated that along with a decline in the number of unsold inventory, the city is likely to witness a surge in the number of property investments in the times to come. However, whether the sentiment is short-lived or is here to stay for long is yet to be seen.


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.


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