Should you buy your dream home now or after April?

The Goods and Services Tax (GST) Council recently cut tax rates on housing in both affordable and those out of affordable ambit. What does this mean for home buyers? Will the fall in tax rates translate into lower prices for the end user? Should you wait for a month, till April, which is when the lower GST rates will take effect? Or if builders are likely to raise by 5-6% (to make up for the lack of input tax credit), should you rush to buy your dream home now? DNA Money spoke with experts to understand what the move means for individual home buyers.

New GST rates

As per the GST Council's decision, affordable housing category will attract 1% GST and the rest of the housing categories will be charged 5% tax. Developers will not be able to avail any Input Tax Credit (ITC) benefits due to the rate cut.

Until March 31, 2019, GST on affordable homes will be 8% and on the rest of the categories it will be 12%. However, with ITC benefits in place, a certain percentage of benefits are being passed on to home buyers by several developers.

Impact on developers

As per a Crisil Research report, a drastic 700 basis points reduction in GST is a mixed bag for real estate developers. "While it will marginally increase end-user demand over the near-term, the withdrawal of ITC announced would impact the profitability of developers. There were concerns on ITC not being passed on by developers. Also, exact computation of tax credit was a challenge as real estate projects have long gestation periods, often spanning four to five years. Until now, this made it difficult for developers to gauge the extent of ITC for buyers as calculations also differ for projects launched before and after GST implementation...The withdrawal of ITC will pinch developers in the affordable-housing segment the most, as the share of construction cost is high there," the report said.

Impact on buyers

Prashant Bindal, chief sales officer of the Lodha Group is of the opinion that the last couple of weeks before the next financial year commences is the best time for people to go for their dream home. Bindal said, "Earlier rates were much higher, which discouraged home buyers from purchasing the home of their choice. The availability of ITC helped the developer to reduce the cost price to some extent. However, now in the absence of ITC, developers across the sector will face an increase in the cost of construction, which will be passed on to home buyers. The cost of properties is now likely to rise marginally by 5-6% once new GST rates become effective from April 1, 2019. This makes March a good time for home buyers to invest in real estate at comparatively lesser prices, than prices likely available April onwards."

The rate cut is limited to under-construction homes and not on materials utilised like cement. Hence, Naresh Sheth, Partner, N A Shah Associates LLP is of the view that this may increase the cost in the hands of developers, but they will be relieved from hassles of anti-profit rearing provisions. Also, this makes the tax structure and compliance simple and smooth for real estate sector. "However, the tax rate of cement/ ready concrete mix remains same at 28%. The rationalisation of tax rate on cement would have benefited home buyers more,'' said Shah.

Ankur Dhawan, chief investment officer of PropTiger, too, is of the opinion that there will be some price increase after a month. He said, "Now buyers need not worry about ITC and anti-profiteering authority. For developers, it will require recalculation of pricing if they had assumed certain ITC while setting prices post-GST. Like restaurants we might see some price increase by developers as well."

But this price hike will be limited to developers having deep pockets and the ability to hold inventory.

In case, if buyers feel they have been short changed by the realtor, there is always National Anti-Profiteering Authority one can approach to get justice.

Constructed or under-construction homes?

The dilemma to book an apartment that is under-construction or ready is a long-standing one. This dilemma would continue to remain in the years to come. There are several factors due to which a project languishes right from developer diverting funds, lack of mandatory clearances, change of law, etc. Depending upon one's risk appetite, affordability, location of the housing project, etc, an individual opts for either of the residential project.

"Before the Real Estate (Regulation and Development) Act, 2016 got implemented, indefinite delay was a norm in the industry. Now, with this regulation, the developer is allowed extension of deadline only once (up to a year)," said an industry player.

Secondly, ready homes are available at a premium as compared to the ones being built. As per GST rules, there is no GST to be paid for ready units, but this tax is applicable to be paid by the home buyer for an under-construction dwelling.

Should you buy now or wait?

The GST rate cut has been by 7% and builders are likely to hike property rates by 5-6%/. Hence, for the end consumer or home buyer a relief by way of a rat cut may is not certain. Buying now or later could be the same price for some housing projects.

But some projects may see a fall in prices, say experts. For the end user, especially for first-timer buyers, the advice is not wait if you find a property that meets your requirements. Those buying houses in under-construction property, where the GST impact will be felt the most, stand to benefit from the lower tax rates. With lower GST this segment could see fall in prices, as developers facing a slowdown look to improve their flagging sales.

WAIT AND WATCH

• Following the cut on GST on under-construction property, property prices could fall after April. But some builders may raise prices to make up for withdrawal of input tax credit
   
• First-timer buyers can buy now if they find a property that meets their requirements, but keep in mind risks associated with under-construction property