Homes and gardens

A home will cost more now

With cement and steel showing the maximum increase in prices, construction cost for individual homes is all set to rise by about 15%. Ranjani Govind finds out more

The increased cost of cement and steel in the wake of GST may not eventually affect a home buyer in large residential complexes. However, an individual constructing a home will most certainly have to bear the brunt, according to industry experts in Bengaluru. “Builders or companies will find GST more advantageous with the net effect of GST guarded by their ‘input credit,’” says H.N. Vijayaraghava Reddy, All-India President, Builders Association of India. Earlier, it used to be indirect taxes with VAT, service tax, excise duty, entry tax and surcharge, which worked out marginally higher, but with GST the tax muddle may settle down gradually, added Mr. Reddy.

With GST on cement being 28 per cent and steel burdened with 18 per cent, the cost of construction is all set to increase. But an individual consumer building a house is more affected by retail prices, rather than a person buying a home from within large residential complexes.

While retail price of cement has risen to ₹380 per bag, which is an increase of 12% for anyone building an independent house, the rise in steel prices is ₹48,000 per tonne (₹48 per kg), up by around 12% after GST. The regular solid blocks (cement) that used to be available at ₹44-46 per piece now cost ₹52, showing a 20% hike.

“While cement and steel show the maximum increase, there isn’t much of a change in prices of river sand (₹130 per cubic feet); aggregates (₹28 cft); chapdi size stone (₹12 per piece); M-sand (fluctuating between ₹40 and 45 per cft); and plastering sand (₹65 cft) that has 5% GST,” according to Ashwini Ananth, Manager-Marketing & Tendering, KNK Construction, a recipient of the State government construction award.

Mr. Reddy confirms that individuals may find a nearly 15% increase in construction costs as there are GST increases applicable to cut and polished marble and granite at 28% , fly ash bricks 12%, and sanitary fitting, brass and metal, glass, wires and cables, paint and varnish, keys and locks and aluminium (finished) and doors and windows at 28%.

While average construction prices had hovered at Rs. 1.7 lakh per sq. ft, it will now be costing an extra ₹20,000 on individual constructions. “After all, 40% of the construction cost comes from cement and steel. And interior costs such as plastering, flooring and sanitary will add to it, while builders can pass on the benefits of the input credit to apartment buyers, if they wish to,” says Ms. Ashwini Ananth.

Will GST benefits be passed on to end-users?

According to Suresh Hari, Secretary-CREDAI, “Though the rate of tax under GST regime on cement and steel is lower, the benefit of the same is not realisable due to their increase in cost.”

So, one understands that RERA should not have any impact on construction material and hence costs. However, GST would be a game changer as expressed by experts.

According to Shrinivas Rao, real estate industry expert and CEO, APAC-Vestian, one of the biggest challenges faced by a developer is the management of the multiple indirect tax levied, such as VAT, service tax and excise duty as well as non-creditable taxes such as customs duty, CST, entry tax etc., paid on the procurement side till now.

“All these can add up to anywhere between 20-25% of the construction cost. The whole gamut of input credit including excise duty and CST on construction materials paid by developers, would be allowed, unlike earlier. By rolling multiple taxes into one, the cost of construction is expected to come down. However, it remains to be seen whether this benefit gets passed on to the end-user as pricing of real estate is driven by market forces rather than costing principles,” adds Mr. Rao.

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Printable version | Feb 29, 2020 10:54:28 AM |

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