Slashed GST Is Falling Flat For Affordable Housing Homebuyers

The Centre’s recent decision to slash GST rates from 12% to 8% for affordable housing projects may turn out be just a mirage for the homebuyers. Owing to continuing anomalies in the GST structure in the Indian real estate sector, homebuyers are still bearing the brunt of this new tax structure.

It turns out that between what the developer spends as GST on construction and what he collects as GST from the buyer is a shortfall of more than Rs 50 per sqft. Due to the shortfall, developers tend to increase the cost of apartments and it is homebuyers who end up paying roughly Rs 31,000 more on an approximately 600 sqft flat.

In an elaborate calculation, it is shown that 81% of the value of items used for construction like electrical wires, switches, sanitary fittings, ready-mix concrete, tiles, paint, granite and wooden and aluminium joineries attract 18% GST. While cement attracts 28% GST, river sand, M sand and quarry dust attract 5% GST.

There is 18% GST on labour cost. On the whole, a developer spends on an average Rs 312 per sqft as GST-rate, but recovers just Rs 260 per sqft (as of 8%) from the customer by selling an apartment at Rs 3,250 per sqft. No wonder, the extra cost will be extracted from the buyers.

“No developer will be able to absorb this much burden. There is no other alternative than loading this cost on the project,” ET Realty quoted P. Suresh, MD of Arun Excello, a major affordable housing projects developer in Chennai, as saying. “The government should look into this anomaly and set it right to bring down the cost of affordable housing.”

Suresh further proposed that slashing GST on labour cost from 18% to 5% can be a good and effective solution as it will help in nullifying the difference.

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