5% GST on real estate encouraging for homebuyers and builders

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Published - Feb 25, 2019 6:35 AM

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The proposed bid by the Centre to reduce GST on the under-construction houses to a maximum of five percent without input tax credit (ITC) has been welcomed by developers who think it will revive demand. The slash in GST rates to 5% without ITC from the previous 12% with ITC for premium homes, and to 1% minus ITC for affordable homes from the earlier 8%, gives the beleaguered realty sector the much-needed breathing room and will certainly help it maintain some forward momentum in 2019. Another booster shot given by the government is changing the very definition of the budget-range of affordable housing, said Anuj Puri, Chairman – ANAROCK Property Consultants. ANAROCK data confirms that there are as many as 5.88 lakh under-construction homes lying unsold in the top 7 cities. Of these, 34% are priced below INR 40 lakh alone. With affordable housing now being defined within INR 45 lakh budget, more properties qualify for this ‘sweet spot category. The GST cut, coupled with this critical change in definition, will induce more sales in homes falling in this budget range – a win-win for both builder and buyers. “The government is focused on their agenda of creating affordable homes, which is visible in the decision to reduce GST to a mere 1% in this category. Low outflows will push demand in the segment which, in turn, will keep developers committed to build more affordable homes. The government is steadfastly moving towards achieving their target towards Housing for All 2022.” Expresses Shishir Baijal, Chairman & Managing Director, Knight Frank India Amit B. Wadhwani, Co-Founder, Sai estate Consultants Chembur Pvt Ltd adds, “The revised GST rates will be an added boost for home buyer sentiments across the sector especially in concurrence with the recent budget announcement and alteration in the RBI repo rate. Rationalizing the GST for affordable houses is a levelheaded move by the council, this will further enhance the purchasing power of buyers in alignment and will help to achieve the “Housing For All” mission.” The move is expected to benefit government also. The current 12 per cent GST prompts buyers to opt for ready-to-move-in properties which are exempt from this high tax. “The decision to lower GST will remove the final barriers for fence-sitters from investing in real estate. The Government has been taking steps to revive sentiment and this decision will allow a more balanced sale of inventory between under-construction and ready-to-move-in apartments, providing relief to developers, buyers and lenders.” said Aashish Agarwal, Head- Consulting, Colliers International India. A move to slash GST rates to five per cent will help attract more buyers to under-construction properties, on which stamp duty and registration can be charged. T Chitty Babu, Chairman and CEO, Akshaya Pvt Ltd, “We can witness a tremendous turn around in the coming quarters as the home buyers 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 and allow them to make their home buying decisions with much confidence.” "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.” Declares Rohit Poddar, Managing Director-Poddar Housing and Development Ltd. “The revised GST rates have simplified the tax levy and does not provide the benefit of ITC separately. This augurs well for homebuyers as the process of passing on the ITC under the erstwhile system was a complex issue. This reduction in GST in the hands of the homebuyer will revitalize buying sentiments, effecting higher purchases.” Added Ramesh Nair, CEO and Country Head, JLL India Parth Mehta, Managing Director, Paradigm Realty counters, “Reducing the rate of GST without ITC on non-affordable houses and revising down from 8% to 1% on affordable housing segment is only a buyer centric move by government. However developers will be burdened with GST payments to vendors, suppliers, agencies and contractors and this will land up increasing cost further admidst the already shrinking margin in business due to dynamic policies implemented by government. In order to realise our Prime Minister’s dream of ‘Housing for all by 2022’, the ITC will have to continue or else it will put the entire tax burden on developers hitting the real estate down further.” “This announcement gives an impetus to the affordable housing and enthuse homebuyers to close the sale deals. The GST rate on cement has not been reduced as was expected, at 28 per cent it remains among the highest taxed inputs for construction – and there will be no input tax credit, so developers will face a challenging time. Also, if the announcement was ‘with immediate effect’, we would have seen sales of residential real estate units in the current financial year; the w.e.f. 01 April aspect means we will see rise in sales figures only in the next financial year.” Further adds, Dr Niranjan Hiranandani - MD -Hiranandani Group and National President, NAREDCO. Rajan Bandelkar, President, NAREDCO West, “Amid the impetus of housing for all by 2022 and evolving towards a trillion dollar economy by 2030, this is indeed a big step at par with the goal of central government to scale up on the rankings of EODB in 2019 and enhance the prestige of Indian real estate industry at a global level in the days to come.” Rajeev Piramal, Vice Chairman & Managing Director, Peninsula Land Ltd, “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. The only thing that could have been better is if this was applicable immediately, instead of from 1st April 2019.”