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Home buyers yet to see benefits of GST

Developers cite no benefits for land price abatement, high construction costs for little room to cut prices

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The Goods and Services Tax (GST) was expected to bring down real estate prices, but it hasn't happened into almost two months of the new taxation regime.

Developers do not see prices coming down under GST due to a plethora of reasons.

For the projects that are substantially completed, developers are not able to pass the GST benefits to buyers as they cannot claim input credit for the completed part of the project, which was billed under the previous taxation.

Mumbai-based Oberoi Realty isn't able to pass on GST benefits for its near-completed project.

"For Worli (project called Esquire in Mumbai) we were not able to negate the entire impact of GST. These customers may have to pay a little more than what they were paying but still less than 12%," said Vikas Oberoi, chairman and managing director, Oberoi Realty, in an earnings conference call. However, there's zero GST impact for their other projects.

The reason for the negative impact of GST at its Worli project is advanced construction stage. "If you look at the percentage completion in Esquire, it is at about 72% or 73% versus my collections in Esquire which are already at about 84%. So, from the balance 16%, which I have to bill the customers, I can easily recover the credits from the 28% of the cost to be incurred," said Saumil Daru, chief financial officer, Oberoi Realty.

Under GST, real estate is taxed at 12%, against 5.5% value-added and service tax in the earlier system.

Real estate companies can claim input credit under GST and get the tax paid by suppliers, lessening the burden on buyers.

Although Mahindra Lifespace Developers claimed to pass on GST benefits to the customers, the percentage of benefits vary.

"The extent of benefits depends on balance work to be completed, contracting method, balance material procurement, etc, and varies case to case," said Sunil Sharma, vice-president, market and customer relationship management.

He said at Mahindra Lifespaces, there is an incremental input tax credit flowing to the company which would reduce the construction cost. However, it also expects minor to medium inflationary pressure on construction material and labour cost to build up in the near future, which will marginally erode benefits.

At the same time, Sharma said there will be minor pricing impact onto the new customers due to GST roll-out. "Overall, we do not see any major pricing impact on new customers due to GST rollout."

Rohit Poddar, managing director, Poddar Housing and Development, told DNA Money, "Since land abatement is not available in GST, the prices will rise as the input credit is less than the GST slab. The market is already sluggish and hence it is market forces which will decide whether the increased costs can be passed on to the customer or not."

Asked if prices are likely to fall due to GST's implementation, Poddar said, "Since there is no land abatement in GST the chances of prices falling are slim. Prices have already been corrected substantially. They are going to rise in the foreseeable future."

When it comes to existing home buyers making payments in installments, up to June-end all payments was accounted for as per service tax and value-added tax, wherein the total taxation percentage worked out to be 5.5%. For balance payments starting July 1, GST is being levied by developers.

...& ANALYSIS

  • Under GST, real estate is taxed at 12%, against 5.5% value-added and service tax in the earlier system
     
  • Developers can claim input credit under GST and get the tax paid by suppliers
     
  • Builders do not see prices coming down
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