Builders see affordable housing prices coming down 3-4% under GST

Will the implementation of the goods and services tax (GST) really help you in buying your home for a lesser price? Maybe, if developers do not increase property prices in order to keep themselves afloat to repay returns on investments during this time.

Implementation of the GST regime also means, "In order to avail tax rebates, developers will have to cut on cash component and inputs need to be sourced from registered vendors in order to claim any tax rebate," mentioned a report by CARE Ratings.

Initially, there may be some disruption in price at the time of procurement of raw material from registered vendor.

However, "There would be nil-to-marginal effect on the prices of real estate," mentions the same report.

Apart from stamp duty and registration charges, the buyer of an under-construction property will have to pay 12% of GST.

If National Real Estate Development Council's (Naredco) vice president Ashok Mohanani is to be believed, it is the affordable housing segment that will witness a drop in prices by 3-4%.

Substantiating this claim, Mohanani said, "Under the GST regime, they will experience the benefit of procuring credit. Initially, while builders were paying excise for fittings of cement and steel which would be involved in the property cost, they would never receive any input credit. Due to GST, they will be in a position to procure the credit and would be able to share the benefit with the buyers by cutting down prices. Further, GST will include a more liberal credit system with the developers passing on the aids of augmented credits to the customers."

Sanjay Jain, group managing director of Kolkata-based Siddha Group commented, "Implementation of the new tax regime will help to curb various indirect taxes such as excise duty, value-added tax (VAT) and service tax, which the buyers pay indirectly to the developers."

According to Duville Estates director Tushad Dubash, it is affordable housing and mid-level real estate that will get a push. Thus, prices of luxury- or premium-segment properties will largely remain unchanged.

Under GST, sale of under-construction real estate properties would be classified as a supply of services and would be liable for the payment of GST. However, the sale of completed real estate properties and land are exempted. Also, the service tax and VAT charges currently payable on the sale of under-construction properties would be subsumed by GST.

According to an ICRA note, GST rate will be 12% for construction of buildings intended for sale, where the value of land is included in the sale value. In case the land and construction values are explicitly identified through separate agreements, the GST rate applicable is expected to be 18% on the construction agreement value. Full input tax credit (ITC) would be available for the various goods and services utilised in the construction, though any overflow of ITC beyond the output GST liability will not be refunded.

However, the impact of GST can vary from state to state due to divergences in current tax structures, Moreover, the potential savings in the project cost can also vary according to cost structure inherent to each project.

NOT MUCH GAINS

• Buyer of an under-construction property will have to pay 12% GST besides stamp duty, other charges
   
• It is the affordable housing segment that will witness a drop in prices by 3-4%, say experts