The GST Council’s move to cut the tax rate to 1% (from 8%) on affordable housing and 5% (from 12%) on under-construction housing would raise demand for residential realty, said developers.
Shishir Baijal, CMD, Knight Frank India, said: “The reduction in the GST rates for under-construction projects is the most decisive move by the council with a clear focus on demand stimulation. This move will give the necessary fillip to the demand in under -construction segment, which has been suffering from low sales levels for many quarters.
“The elimination of input tax credit (ITC) benefit may hit profitability for the supply side. However, the potential demand generation as a result of this move will far outweigh negative aspects leading to greater sales numbers and revenues. We estimate that the reduction in GST rates can reduce the buyers’ payout by 6-7% on the overall purchase, depending on the category. The consequent accelerating sales will reduce the unsold inventory, which has been afflicting the sector,” he said.
Niranjan Hiranandani, MD, Hiranandani Group and national president, NAREDCO, said: “Industry lauds the rate cut. This move brings relief to homebuyers and helps narrow down demand-supply gap. This announcement will give a fillip to affordable housing and enthuse homebuyers to close sale deals.”
No cut in GST on cement
However, he said, the GST rate on cement had not been reduced as was expected. “At 28%, it remains among the highest taxed inputs for construction and there will be no ITC. So, developers will face a challenging time.”
Parth Mehta, MD, Paradigm Realty, said: “This is only a buyer-centric move by the government. However developers will be burdened with GST payments to vendors, suppliers, agencies and contractors and this will increase the cost further amid the already shrinking margin in business due to policies implemented by government.”
Anshuman Magazine, chairman and CEO, India, south east Asia, middle east and Africa, CBRE, said: “This is a huge relief for home buyers and the developers alike. Having a standard tax [rate] will surely help the developers save cost and achieve economies of scale at various levels and help them pass on the benefit to the consumers.”
