Owing to the currently prevalent Goods and Services Tax (GST) rate of 12 percent, the under-construction properties have eventually become a less attractive proposition for the homebuyers. Though the industry was looking forward to a revision in the GST rates in the January 2019 session of the GST Council, the matter was left to deliberate further. 99acres.com interviews ten eminent industry experts to find out their opinion on the possible reduction in the GST slab for under-construction units.
High inventory, low liquidity and high input cost are some of the major obstacles hampering the revival of the realty sector for long. As the government is set to present its budget before the general elections, the real estate sector is looking forward to having add-on benefits for the industry, which includes a possible revision in GST on under-construction units from 12 percent to eight or five percent. This has indeed been a long-standing issue which is considered pivotal for creating a conducive environment along with triggering positive sentiment in the market.
Here is what our industry experts have to say on the possible reduction in the GST slab -
Amit Modi, Director ABA Corp, VP CREDAI, Western UP
Even though there has been a lot of noise around GST on under-construction units, there has not been any sign of a concrete decision making yet. Reduction in the GST rate by taking away the unit credit that the realtors can redeem will actually increase the burden on the end-customer. The unit credits availed by the developer realistically brings down the cost of taxation because the benefit is passed on to the consumers. If the credits are taken away, the cost of construction will rise exponentially. We believe that merely bringing down the cost of GST by doing away with the input credits is not a great decision to make. It should not be an initiative which is only good on paper, but in reality, it turns out to be a more lopsided and expensive proposition for the consumers, especially for the first-time homebuyers. In the long run, it will also impact the Prime Minister’s vision of ‘Housing for all by 2022’. Therefore, we recommend not taking away the GST credits on under-construction units that the developer can avail.
Shishir Baijal, Chairman and Managing Director, Knight Frank
The current GST rate of 12 percent coupled with 1/3rd abatement for land is adding upward pressure on the overall cost of the house. We expect a reduction in the GST rates for affordable housing projects to an effective six percent by enhancing the abatement for land to 50 percent. This will provide a boost to the mission of ‘Housing for All by 2022’.
Ashok Mohanani, Chairman, Ekta World and Vice President, NAREDCO West
The Goods and Services Tax (GST) Council is mulling over the idea to slash GST rates applicable on under-construction units. It is definitely a positive decision which will be nothing less than a revolutionary move by the Government and one that will create ripples for long. The decision to slash GST rates from 12 percent to five percent with continued Input Tax Credit (ITC) will have a positive impact on the housing sector and consumer psyche. It will also play a crucial role in achieving the target of ‘Housing for All by 2022’ under PMAY. However, any reduction in GST without ITC will increase the cost of construction and consequently the housing prices which will be detrimental to buyers and developers alike.
There will be a huge pile of unsold inventory in case there is no reduction in the GST slab. The homebuyers prefer ready-to-move-in units only because they are exempted from the purview of GST. If the GST rates are not slashed, it might cause a further slowdown in the real estate sector.
Manju Yagnik, Chairperson, Nahar Group
The Goods and Services Tax (GST) Council is currently contemplating over the idea to slash GST rates in the real estate sector as it is indeed imperative to rationalise GST rates across the sector. With the relief on GST load, absorption of under-construction properties will surge exponentially. Buyers will become more confident about investing in under-construction properties, and the funds will be liberalised for the developers, too. This movement is a boon, especially for the salaried people who want to buy a property after analysing the payment options that offer affordable instalments. The rate cut will ensure that there is less price burden on the buyer and the overall cost of under-construction flats is reduced. If the government manages to do so, it will be nothing less than a revolutionary move with positive long-term effects on the sector. As a result, buyers will be instilled with renewed confidence, aiding their return towards property investments, thus helping clear off the unsold inventory. This move will also play a crucial role in achieving the target of ‘Housing for All by 2022’.
However, if there is no cut in GST rates, people will keep on pursuing ready-to-move-in flats since they are exempted from GST and under-construction flats will not get any cheaper which could result in additional unsold inventory in the market.
Arya Sumant, Managing Director, Eden Realty Group
There is a very high possibility that the current rate will be reduced from 12 percent. However, a GST rate of five percent without Input Tax Credit (ITC) will be detrimental for the sector as it will boost the property prices. On the other hand, eight percent with ITC or for that matter any reduction with ITC shall give a big push to the real estate sector and immensely help in reviving sales. If there is no reduction in the GST slab, the slowdown in the real estate sector shall continue for long, leading to a rise in property prices and loss of confidence amongst the consumers related to property investments.
Parth Mehta, Managing Director, Paradigm Realty
There seems to be a very less chance of revision in GST from 12 percent to five percent. We believe that the committee set by the Finance Minister will decide the possible revision of GST from 12 percent to eight percent, and those that were eight percent will come down to five percent. There is no doubt that revision in GST will act as a blessing to the real estate sector. It will propel the homebuyers to buy new homes and will eventually cause an increase in sales. If GST becomes eight percent in overall, which is already the case for houses under PMAY, then the average GST savings would be Rs 2.5 lakh for 1BHK homes, Rs 4 lakh for 2 BHK units, Rs 6 lakh for 2.5 BHK units, and Rs 6.5 lakh for 3 BHK units. With GST at five percent, the savings could be as high as Rs 5 lakh on 1BHK units, Rs 8 lakh for 2 BHK units, Rs 10 lakh on 2.5 BHK units and Rs 13 lakh for 3 BHK units. Also, GST deduction will only benefit when the under-construction homes are purchased under the CLSS, i.e. the Credit-Linked Subsidy Scheme.
If there is no revision, the situation will either worsen or stay neutral in the real sector. Further, the cycle of sales and unsold inventories will continue to remain the same.
Sankey Prasad, Chairman and Managing Director, Synergy Property
The expected slash of GST on under-construction flats and houses to five percent would be a welcoming move. We will have to wait and watch as to how this move pans out and what will be its possible implications in the long run. However, the general sentiment within the real estate fraternity is upbeat, and the move is likely to set the industry on an optimistic path.
Amol Prabhu, Partner, Shashi Prabhu and Associates
With the Union Budget 2019-20 coming up, most of the people are expecting tax revisions and infrastructure incentives for the sector. Moreover, the industry players are also hoping that the government will reduce the GST rates on under-construction units from the current rate to a more standardised and affordable rate including the input tax credits and stamp duty. Seeing the current situation of the market, the recommendation can help bring back life into the sector.
Abhishek Bhardwaj, Chief Marketing Officer, Shristi Infrastructure Development Corporation Ltd
We are looking forward to the rationalisation of GST rates on under-construction units as this will be a significant boost to the industry and will be good news for the homebuyers. If the proposal is cleared, buying an under-construction apartment will become much cheaper. The buyers tend to buy ready-to-move-in flats, and one of the most important reasons for this decision is that completed units are virtually exempted from GST. In order to clear the inventory of under-construction flats, a reduction in GST would definitely help. If there is no reduction, it will lead to piling up of colossal inventory which ultimately will cause a slowdown in the real estate market.
Nakul Himatsingka, Managing Director, Ideal Group
We are not in a position to say with certainty whether such a policy decision will take place or not. The industry can only hope that GST reduction on under-construction units is implemented. It is expected that post the reduction, the buyers will once again consider investing in under-construction units. Undoubtedly, the seven percent reduction is a significant benefit that the industry is looking forward to. If this does not happen, the incidence of fence sitters expecting a rate cut may increase.
Rationalisation of GST is one of the major changes that the real estate industry is looking forward to. While the said move is expected to revive the industry at large, it is also believed that taking away the input credits that can be availed by the developer will adversely impact the property prices and hence, prove detrimental to the sentiment of the prospective homebuyers. While many are certain about the possible reduction in GST slab, others are adopting a wait-and-watch approach.