Mumbai's realty players hailed the GST Council's decision to provide a pick between two tax slabs for ongoing projects, saying it will provide relief to purchasers by making homes more affordable.
The mighty Council, at its 34th meeting on Tuesday, provided a choice between paying the normal tax rate of 12% (with credit) and 5% (without credit) for ongoing projects — those for which construction started before April 1, 2019.
In the case of affordable housing, the rate would be 8 per cent (with credit) and 1 per cent (without credit).
Some developers feel the Council's decision will hit their margins. But others think the power to choose between old and new rates will be favourable both for developers and buyers. Builders will likely focus on aligning their finances by making use of input tax credit (ITC) or working along the new guidelines without ITC.
Overall, experts predict the decision favours under-construction properties and will allow stable sector growth.
The option has to be exercised within a period which will be specified. Nahar Group vice-chairperson Manju Yagnik said it was only fair the government ensured flexibility of timelines while devising the new rates.
As far as unsold inventory is concerned, around 4 lakh flats remain unsold and to ensure a smooth closure, they have the option of transitioning to new rates.
"Mumbaikars will now be more open to purchasing properties under the affordable and mid-segment categories, where units are priced under Rs 60-80 lakh,'' she said.
Renowned builder Niranjan Hiranandani said the clarity was welcome, as was the choice given to real estate developers with ongoing projects in Mumbai Metropolitan Region (MMR).
"Ongoing projects in MMR will have different levels of ITC accrued till March 31, based on the level of completion. So a developer can decide whether the old system is financially more viable or the new one,'' he said.
Poddar MD Rohit Poddar said sector growth will be visible in many parts of the state.
Realty researcher Knight Frank India's CMD Shishir Baijal said builders with healthy sales traction are likely to continue with the old regime. "But consumers will still expect developers to charge lower GST rates in line with the new tax regime, which might affect margins. But for projects with slower sales velocity, developers may change course as the stimulation of demand will far outweigh the adverse impact of ITC withdrawal on developer margins."
REALTY AID
- All-powerful GST Council clears transition plan for the implementation of new tax structure for housing projects
- Developers of residential projects which are incomplete as on March 31 will have option either to choose the old structure with Input Tax Credit (ITC) or to shift to new 5 per cent and 1 per cent rates without ITC
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