DNA Edit: Booster dose – GST cut and change in affordable housing will help

The beleaguered real estate sector got a shot in the arm on Sunday. The slash in GST rates to 5 per cent without input tax credit (ITC) from the previous 12 per cent with ITC for premium homes, and to 1 per cent minus ITC for affordable homes from the earlier 8 per cent, gives realty some breathing room and should help it maintain forward momentum this year. The other fillip offered by the government is to change the very definition of the budget-range of affordable housing. Extending the definition to housing priced within Rs 45 lakh is much more realistic. At one stroke, properties in the premium sector have come within the ambit of the affordable segment. It will benefit buyers in cities like Mumbai and Delhi, where prices are exorbitant. In an election year — with housing as a crucial political card — the affordable segment has got a push, with buyers keen to exploit the considerable unsold stock. 

According to one estimate, there are as many as 5.88 lakh under-construction homes lying unsold in the top seven Indian cities. Of these, 34 per cent are priced below the Rs 40-lakh mark. The GST cut, coupled with this critical change in definition, is expected to induce more sales in homes falling in this budget range, a win-win for both builder and buyers. Cash-strapped builders have been hoping for any government intervention, which can help boost sales. This GST cut will provide such a boost, at least in the short-term, prompting fence-sitters who had been postponing their purchase decisions, to bite the bullet. For the premium segment, however, this move may not be a game-changer leading to vastly improved housing sales, but things could look rosier to a limited extent. The reduced rate, though nominal, will marginally alleviate developers’ liquidity issues. 

Insiders in the housing sector believe that along with the other positives that the recent interim budget provided, it will create a more forward looking environment for all real estate stakeholders. An important factor in this rate cut is its timing. With the general election closing in, builders are naturally concerned about low sales, an invariable by-product of the period preceding any poll. Investors generally keep away from market plays in this period while buyers go into the wait-and-watch mode as they look forward to sops from a newly-elected government or stronger market sentiments resulting from continuity of the incumbent government. For this reason, builders also generally stay away from launching new projects in this period. 

To be sure, the realty sector’s one fond hope — of the GST being removed entirely for all residential property categories - has not been fulfilled. This would have provided some serious acceleration for the market. While Housing for All by 2022 is a distant dream, the realty sector, under tremendous stress since demonetisation, would be happy to get whatever help comes its way. Indeed, it has come down a long way from being once regarded as the place to park illegal monies.