GST rate cut to impact demand, improve transparency in real estate
Real Estate

GST rate cut to impact demand, improve transparency in real estate

The GST Council’s decision to reduce the GST rates for under-construction residential housing projects will lead to marginal traction in demand and bring in more transparency for home buyers, according to India Ratings and Research (Ind-Ra). Reduced total outflow for home buyers could increase the attractiveness of under-construction residential units, considering the base prices remain stable in the absence of input tax credit (ITC) availability for developers.
 
Traction in demand to improve provided base prices remain stable: The reduction in GST rates could lead to a monthly saving of Rs 800-1,000 for a homebuyer, considering an average ticket size of Rs 2.5 million with 7 per cent reduction in tax in case of affordable units. The savings could be also be in the range of Rs 2,750-3,000, considering an average ticket size of Rs 7.5 million with 7 per cent reduction in tax for the non-affordable units. This is after assuming that developers do not pass on the increase in prices due to the non-availability of ITC. The real estate sector is witnessing soft demand growth and flat prices in wake of a huge inventory of finished units or unfinished units. Companies with completed inventory are typically better placed in terms of off-load risk than those with under-construction projects, as the demand is driven by end-consumers who are averse to project risks (delay in delivery properties). However, Ind-Ra opines the change in tax rates could bring some traction in demand to the under-construction segment, if base prices remain stable.
 
Fresh buying may slowdown in FY2019: Since the new GST rate for under-construction housing projects is effective from April 1, 2019, any new buying in such projects could be deferred until the beginning of FY2020. Hence, the Q4 FY2019 sales numbers (result is a function of accounting) for most developers having major projects in under constructions stage could decline.
 
Likely repricing of housing units by developers: The rate cut ideally should support demand, assuming it results in an overall price reduction. However, considering ITC typically would account for 4 per cent to 6 per cent of sales price, resulting in net GST tax 3 per cent to 7 per cent, there is not much room for builders to reduce prices. Also, in cases where the builder was retaining any benefit of ITC, the new regime would eliminate any such possibility, and thus may result in builder re-pricing apartments or /flats. Clarity would be required for cases where the builder has already signed a sale agreement (assuming ITC he would be availing) but invoice (linked with construction progress) would be raised under the new regime (without any ITC). This situation can result in the builder renegotiating prices as the base price should go up without factoring in ITC.
 
Brings in more clarity on tax structure: Currently, there is lack of clarity with regards to the claims of developers in passing on the benefit of any ITC to end-buyers. The effective tax paid by home buyers in the current structure is thus ambiguous. Ind-Ra believes the reduction in GST rates and absence of ITC would bring in more transparency on the overall tax payment for home buyers.
 
Positive for housing finance companies, delinquencies could moderate: Any incremental demand from the GST rate cut would be positive for housing finance companies, especially in case of the affordable housing segment where the loan books have increased by 2.6x since FY2015. Concurrently, the lagged delinquencies in the affordable housing segment have reached 2 per cent. However, the delinquencies across the segments could see some moderation with incremental savings at the disposal of home buyers due to the reduction in GST rates.

Your next big infra connection is waiting at RAHSTA 2025 – Asia’s Biggest Roads & Highways Expo, Jio World Convention Centre, Mumbai. Don’t miss out!

The GST Council’s decision to reduce the GST rates for under-construction residential housing projects will lead to marginal traction in demand and bring in more transparency for home buyers, according to India Ratings and Research (Ind-Ra). Reduced total outflow for home buyers could increase the attractiveness of under-construction residential units, considering the base prices remain stable in the absence of input tax credit (ITC) availability for developers. Traction in demand to improve provided base prices remain stable: The reduction in GST rates could lead to a monthly saving of Rs 800-1,000 for a homebuyer, considering an average ticket size of Rs 2.5 million with 7 per cent reduction in tax in case of affordable units. The savings could be also be in the range of Rs 2,750-3,000, considering an average ticket size of Rs 7.5 million with 7 per cent reduction in tax for the non-affordable units. This is after assuming that developers do not pass on the increase in prices due to the non-availability of ITC. The real estate sector is witnessing soft demand growth and flat prices in wake of a huge inventory of finished units or unfinished units. Companies with completed inventory are typically better placed in terms of off-load risk than those with under-construction projects, as the demand is driven by end-consumers who are averse to project risks (delay in delivery properties). However, Ind-Ra opines the change in tax rates could bring some traction in demand to the under-construction segment, if base prices remain stable. Fresh buying may slowdown in FY2019: Since the new GST rate for under-construction housing projects is effective from April 1, 2019, any new buying in such projects could be deferred until the beginning of FY2020. Hence, the Q4 FY2019 sales numbers (result is a function of accounting) for most developers having major projects in under constructions stage could decline. Likely repricing of housing units by developers: The rate cut ideally should support demand, assuming it results in an overall price reduction. However, considering ITC typically would account for 4 per cent to 6 per cent of sales price, resulting in net GST tax 3 per cent to 7 per cent, there is not much room for builders to reduce prices. Also, in cases where the builder was retaining any benefit of ITC, the new regime would eliminate any such possibility, and thus may result in builder re-pricing apartments or /flats. Clarity would be required for cases where the builder has already signed a sale agreement (assuming ITC he would be availing) but invoice (linked with construction progress) would be raised under the new regime (without any ITC). This situation can result in the builder renegotiating prices as the base price should go up without factoring in ITC. Brings in more clarity on tax structure: Currently, there is lack of clarity with regards to the claims of developers in passing on the benefit of any ITC to end-buyers. The effective tax paid by home buyers in the current structure is thus ambiguous. Ind-Ra believes the reduction in GST rates and absence of ITC would bring in more transparency on the overall tax payment for home buyers. Positive for housing finance companies, delinquencies could moderate: Any incremental demand from the GST rate cut would be positive for housing finance companies, especially in case of the affordable housing segment where the loan books have increased by 2.6x since FY2015. Concurrently, the lagged delinquencies in the affordable housing segment have reached 2 per cent. However, the delinquencies across the segments could see some moderation with incremental savings at the disposal of home buyers due to the reduction in GST rates.

Next Story
Real Estate

Vitizen Hotels Signs Deal at Manyata Tech Park

Vikram Kamats Hospitality, as part of its ongoing expansion in key metropolitan markets, announced that its material subsidiary, Vitizen Hotels, has signed a long-term lease agreement for a 45-key hotel property at Manyata Tech Park, Bengaluru.Strategically located in the city’s prominent IT hub, the property is well-positioned to serve corporate travelers, business professionals, and long-stay guests. The addition aligns with the company’s asset-light growth model, leveraging long-term leases to expand its footprint in high-demand urban markets.The hotel is expected to strengthen the comp..

Next Story
Infrastructure Transport

CONCOR Signs MoU with BPIPL to Operate Container Terminal at Bhavnagar Port

Container Corporation of India (CONCOR) has signed a Memorandum of Understanding (MoU) with Bhavnagar Port Infrastructure (BPIPL) on September 4, 2025, in New Delhi to operate and maintain the upcoming container terminal at the northside of Bhavnagar Port, Gujarat.BPIPL had earlier entered into an agreement with the Gujarat Maritime Board (GMB) in September 2024 for the port’s development. Under this arrangement, 235 hectares of land has been leased to BPIPL for 30 years, with provision for expansion by an additional 250 hectares.The new terminal is expected to significantly enhance logistic..

Next Story
Infrastructure Transport

Concord Launches India’s First Indigenous Zero-Emission Rail Propulsion

Concord Control Systems (CCSL), a leader in embedded electronics and critical rail technologies, has announced the development of India’s first fully indigenous zero-emission propulsion system, marking a significant step toward the country’s railway electrification and net-zero goals for 2030.Powered by Lithium Iron Phosphate (LFP) batteries and featuring a DC chopper-based drive, the propulsion system eliminates idling losses common in diesel engines, offering higher efficiency, lower costs, and zero emissions.What sets this innovation apart is its completely indigenous design. Except for..

Advertisement

Subscribe to Our Newsletter

Get daily newsletters around different themes from Construction world.

STAY CONNECTED

Advertisement

Advertisement

Advertisement

Talk to us?