The beleaguered Indian real estate sector got a bleak ray of hope on Sunday when the government slashed GST rate to 5 percent without input tax credit (ITC) from the previous 12 percent and to 1 percent from the earlier 8 percent. The reduction in the rates, no matter how marginal it may be, is expected to give the push the industry a push at least for this year.
It is not only the reduction in GST but the other fillip too is going to play a pivotal role and that is the change in the definition of budget-range of affordable housing. Extending the definition to housing priced within Rs 45 lakh is much more realistic, especially for the cities like Delhi-NCR and MMR.
The industry experts, as well as the realtors, are welcoming the move. As Mr. Madhusudhan G, Chairman and MD, Sumadhura Group, told the publication:
“The approved reduction in the levy on under-construction homes and the raised threshold for affordable housing by the GST Council is largely seen as a welcome move by the industry, especially for the home-buyers segment.”
“As pointed out by our finance minister, the move will certainly make housing affordable for middle class, neo-middle class, and aspirational class. However, in order to fulfill the government’s mission of ‘Housing for all by 2022’, the ITC (input tax credit) I opine should continue or else it is likely to put the entire tax burden on developers hitting the real estate down further.”
This is how the GST rate cut is going to push the real estate industry:
- As per a report, there are as many as 5.88 lakh under-construction homes lying unsold in the top seven Indian cities. Of these, 34 percent are priced below the Rs 40-lakh mark.
- The decision’s timing is very crucial. With elections approaching, buyers and investors usually tend to keep away from the market and go into the wait-and-watch mode as they look forward to sops from a newly-elected government.
- Fence-sitters, first-time home buyers and investors who have been postponing their purchase decisions post-election will now be more eager to take the plunge. Definitely, the rate cut coupled with the expansion of the affordable segment will induce more sales.
- More sales will bring some relief to inventory-loaded, cash-strapped builders who reportedly have been banking their hopes on government intervention, to boost sales.
- Although the GST cut will have a very marginal effect on the premium and luxury segment, the reduced rate is expected to give a little nudge to the sales which in turn is expected to marginally alleviate the developers’ liquidity issues.