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GST Impact on Property Prices.

Blog - How GST Will Impact On Property Prices - GharPravesh

The Goods and Services Tax Council has recently reduced tax rates on under construction flats to 5% and affordable homes to 1%. These rates would come into effect from the upcoming fiscal year, beginning 1st April 2019.

As of now, the GST on payments made for Under-construction flats stands at 12% with input tax credit (ITC). The current rate for affordable housing units is 8%.

Additionally, the GST Council also revised the definition of affordable housing to encourage citizens from availing GST benefits. Now, flats costing up to Rs 45 lakhs and measuring 60 sq metres carpet area in metros (Delhi-NCR, Bengaluru, Chennai, Hyderabad, Mumbai-MMR and Kolkata) and 90 sq. metres carpet area in non-metros will fall under the category of affordable housing.

Home buyers are advised to read the fine print

Major concerns making home buyers wary of buying under-construction property are delayed projects and reputed construction companies being involved in fraudulent activities.

While the latest drops in GST rates does spell good news for citizens, there are a few things to consider before celebrating the annfonttypeouncement.

To begin with, these cuts will be effective from 1st April 2019, and not immediately. This means that there won’t be an immediate scramble among buyers to purchase an under-construction property right away.

Secondly, it also depends on whether the cost of construction lowers – and if not, how much of that burden is shifted on to the buyers by the builder. It is understood that the construction costs are unlikely to lower since input tax credits have been disallowed. It is also worth noting that GST rates for some of the raw materials needed for construction have remained the same or are still sky-high.

In the words of Niranjan Hiranandani, National President, National Real Estate Development Council (NAREDCO), “This announcement gives an impetus to the affordable housing and enthuse home buyers to close the sale deals. The GST rate on cement has not been reduced as was expected, at 28% 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. 1 April aspect means we will see a rise in sales figures only in the next financial year.”

Going by current estimates, it has come to light that about 90% of the Properties on sale in the market are ready-to-move-in. The remaining 10% share is held by big, reputed construction firms. There were several instances of buyers being unwilling to pay the 12% GST, which led to builders offering discounts on the same in the form of “limited period offers”, and absorbing the cost themselves. This was seen as a good move from the builders’ perspective to sell off any pending inventory, with the buyers benefitting from the move as well.

Thus, to know about the true effects and impact of the slashed GST rates, we would have to wait until well after 1st April 2019 and take stock of the pricing and demand in the housing sector.

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