GST sops: Real estate sales to rebound from April

The much-needed taxation relief for homebuyers has finally been announced, but it will take a month's time for the prospective buyers to make a move.

On Sunday, GST Council reduced the Goods and Services Tax (GST) rate on real estate, for both affordable as well as non-affordable housing categories.

The revised rates would come into effect from April 1. Hence, the fence-sitting homebuyers or potential homebuyers will wait for one more month before going ahead with their plans.

Due to this factor, the next month will witness a lull in property sales. However, the pace of sales is expected to pick up from April 1 onwards.

After the announcement, Niranjan Hiranandani, managing director of Hiranandani Group and national president, Naredco, said, "Industry lauds the GST rate cut on real estate to 5% on non-affordable and 1% on affordable housing without the input tax credit. It is a welcome and positive move which brings a big relief to homebuyers and help to narrow down the demand mismatch gap. This announcement gives an impetus to the affordable housing and enthuse homebuyers to close the sale deals."

"The GST rate on cement has not been reduced as was expected. At 28%, it remains among the highest taxed inputs for construction – and there will be no ITC, so developers will face a challenging time. Also, if the announcement was 'with immediate effect', we would have seen sales of residential real estate units in the current financial year. With effect from April 1, we will see a rise in sales figures only in the next financial year," said Hiranandani.

In the meeting, it was also decided that all homes up to Rs 45 lakh will be classified as affordable housing. Therefore, number of housing inventory will fall under the affordable housing segment.

"Extending the definition to housing priced within Rs 45 lakh is credible. It will make more properties from the premium budget fall into the affordable segment category, and thus benefit buyers in cities like the Mumbai Metropolitan Region where property prices are exorbitant," said Anuj Puri, chairman, Anarock Property Consultants.

This move will certainly result in sales of housing units within this segment to rise to a significant extent. Most players currently have a considerable amount of unsold stock within this segment.

As per the data with Anarock, there are as many as 5.88 lakh under-construction homes lying unsold in the top seven cities. Of these, 34% are priced below Rs 40 lakh alone. With affordable housing now being defined within the Rs 45 lakh budget, more properties will qualify for this 'sweet spot' category. The GST cut, coupled with this critical change in definition, will induce more home sales in this budget range – a win-win situation for both builder and buyers.

On the government's move, Abhishek Jain, tax partner, EY, said, "A reduced effective rate of GST of 5% and 1% is good news for the real estate industry as the 12% and 8% rate was a bit of a deterrent for buyers while buying under-construction properties. However, the denial of ITC creates a GST arbitrage in favour of constructed properties where with no ITC available, there is no output GST also."

Whereas, Amit Ruparel, managing director, Ruparel Realty, said, "This (slashing GST rates) will immensely help boost demand for under-construction residential properties, and also simplify tax structure and compliance for builders. However, the industry was also hoping for clarity on the taxes to be paid on raw materials like cement and steel against the final tax liability on under-construction properties. Also, the cap of Rs 45 lakh is not really encouraging for Mumbai as it cannot be compared to other regions."

BRICK BY BRICK

• 5% – Goods and services tax rate cut on non-affordable housing units
   
• 1% – Rate cut on affordable housing without the input tax credit