The Goods and Services Tax (GST) Council recently cut down tax rates on under-construction housing properties from 12 per cent to 5 per cent without input tax credit. The council has also slashed down GST rates on affordable housing projects from 8 per cent to 1 per cent.
According to Chandrajit Banerjee, Director General, CII, “It more than meets the expectations of the real estate sector and will go a long way towards addressing the needs of home buyers. By reducing GST rates from 12 per cent to 5 per cent on houses under construction, as well from 8 per cent to 1 per cent on affordable housing, the GST Council has provided a great relief to the sector and is a step towards hastening growth for this very important sector.”
Sanjay Dutt, Chairman, FICCI Real Estate Committee and Managing Director & CEO, Tata Housing and Tata Realty and Infrastructure, while applauding the move said that, “the government has timely assessed the need of the hour. The customers needed this relief. It will help unlock value from under construction projects, which is critical to restore confidence in the developers as much as the customers.” He further added that the extension of definition to housing prices within Rs 4.5 million will lift sales in this segment now falling in the affordable category across cities and help customers as well as developers, not to mention encourage lenders, allocate or make available more capital for this segment. “The input tax credit is critical for the developers and many would get hit. The government should reconsider this aspect, also the affordable segment will gain the much-needed focus with this policy.” Dutt also expressed the need of similar decision on reducing the GST on cement from 28 per cent to single digits as it directly impacts the affordability of houses.
Further, Rajeev Piramal, Co-Chairman, FICCI Real Estate Committee and Vice Chairman and Managing Director, Peninsula Land, said, “The GST Council’s decision on reducing the tax rate on under-construction homes to 5 per cent and significantly slashing the rate on affordable homes to 1 per cent from 8 per cent is a win-win situation for both developers and homebuyers. The government’s decision on expanding the scope of affordable housing is in sync with its vision of ‘Housing for all by 2022’. We believe this move will encourage home buyer sentiments and will significantly boost the demand for affordable homes.”
Added Rahul Prithiani, Director, CRISIL Research: “Over the past two years, the preference for completed projects has been clearly visible because of the additional GST burden and execution risks associated with under-construction properties. With the RERA framework evolving and GST reduced, end-user confidence towards under-construction properties will improve. This should also gradually improve volume growth and liquidity of cash-starved developers. Overall, the announcement would be neutral for developers. The reduction in GST is a mixed bag for realtors. While it will marginally increase end-user demand over the near-term, the withdrawal of input tax credit could impact the profitability of real estate developers. Developers will need price hike of 2-4 per cent to maintain margins-which seems difficult in current market scenario.”
For Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE, “This is a huge relief for homebuyers and the developers alike. The reduction in GST on under construction residential projects will further give the much-needed boost to the industry. Having a standard tax will surely help the developers to save cost and achieve economies of scale at various levels and help them to pass benefit to the consumers.”
The reduction in the GST rates for under-construction projects is the most decisive move by the GST council with a clear focus on demand stimulation, according to Shishir Baijal, Chairman & Managing Director, Knight Frank India. “This move will give the necessary fillip to the demand in under-construction segment, which has been suffering from low sales levels for last many quarters. The elimination of input credit tax benefit may hit profitability for the supply side; however, the potential demand generation as a result of this move will far outweigh any negative aspects leading to greater sales numbers and revenues. We estimate that the reduction in GST can potentially reduce the buyers payout by 6-7 per cent on the overall purchase, depending on the category. The consequent accelerating sales will bring down the unsold inventory which has been afflicting the real estate sector.” He added that the government is focussed on their agenda of creating affordable homes, which is visible in the decision to reduce GST to a mere 1 per cent 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.”
Said Jaxay Shah, President, CREDAI National, “The reduction of GST on affordable housing to 1 per cent is a revolutionary step for Indian real estate. This move is a significant triumph for homebuyers and will play a huge hand in boosting their sentiments. The Indian real estate industry is now set to leap forward with the revised GST rate and the enhanced ease of doing business.”
Dr Niranjan Hiranandani, Managing Director & Founder, Hiranandani Group and National President, NAREDCO, said: “Industry lauds the GST rate cut on real estate to 5 per cent on non-affordable and 1 per cent on affordable housing without input tax credit as a welcomed and positive move which brings a big relief to the homebuyers and helps to narrow down the demand mismatch gap. This announcement gives an impetus to the affordable housing and enthuses homebuyers to close 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. April 1 aspect means we will see rise in sales figures only in the next financial year.”