GST’s Impact on Real Estate—Is it a Boon or a Bane?

GST’s Impact on Real Estate—Is it a Boon or a Bane?

There is enough furore already that the roll out of GST has created in almost every sector in the country. Home buyers and property developers are also affected, but most of them are yet to know how. Let us try joining the dots one by one.

The Good and Services Tax roll on July 1st 2017 was historic to say the least. Prime Minister Narendra Modi’s vision of “One Nation, One Market, One Tax” finally saw the day of light. Needless to say ever since the news of GST broke out, it created anticipations like no other. Almost every industry and people from every walk of life are sure to be affected by the new tax reform.

Coming to the real estate sector in the country, the confusions don’t seem to end even few days after the official roll out. To set the record straight, irrespective of whether you are a home buyer, property seller, broker, investor, financier or property developer, you are bound to be impacted.

The confusion predominantly looms around whether buyers will have to shell out more to own a house and whether developers will now be forced to spend more to buy materials. Let us zero in more to get the much needed clarity.

GST impacts on property prices and the industry as a whole

Facts and figures that matter the most

  • Developers save on construction costs: With just 2% increase for cement but 5% reduction for limestone, lignite, coal, etc developers can save good money on construction costs.
  • Manufacturers can lower the prices: Manufacturing industry gets relieved and are now expected to lower the prices of their products, which in turn will further lower the property prices.
  • Double taxation or may be not: Under construction flats will be taxed at 12% with 6% of land tax being separate. The new projects, on the other hand, will go with 18% tax.
  • Cash component goes out: Demonetisation, RERA and now GST put together make the labour sector an organised one. This makes the real estate industry running well with major cash components.

How does it turn out for the home buyers?

On the whole it is a definite win for the buyers who get simplicity and some price deduction as part of the GST rollout.

Things become simpler for the home buyers. The earlier tax structure was complex with conditions related to the construction status and the state the project was located in. To make it worse home buyers were obligated to pay stamp duty, service tax, registration charges and VAT even for under construction homes. What complicated the matter further was VAT, stamp duty and registration charges varied from one state to another. Service tax was a central charge and was applied on construction. All these put together made the whole calculation a confusing and tedious one.

The developers get input credits for under construction projects and a part of the benefit can be transferred to the home buyer. So, GST makes things simpler and more economical for an average home buyer.

Do the developers benefit too? Let us find out

Raw materials prices go down, resulting in lowered construction costs

The project cost for real estate developers will go down as a result of GST, which will actually make homes cheaper. Naturally, along with home owners the property developers also enjoy the perks of GST.

Now developers no more need to break their heads over Central Sales Tax, entry tax, customs duty, excite duty, and so on. GST eliminates all these taxes and makes it a single tax, which will boost home sales and increase liquidity in the real estate market. The input credits further boost the profit margin for developers.

Right from steel, cement, raw materials to work contracts, everything has been standardised. Sure there are some minor tax increments on few items but on the whole they are easily outweighed by the GST benefits.

How is real estate industry coping with the roll out?

The present and future looks simple, stable and economical.

Post roll out of GST, the real estate sector has come to terms with the fact that the Input Tax Credit will change the game for good in very near future. Builders can claim the tax paid at each stage and the benefits can also be passed on to their buyers.

All the state governments have been instructed to roll out necessary approvals as soon as possible in order to bring instant relief to the sector. On the whole, the compounded advantage of the Good and Services Tax may not result in too much of price deviation immediately. What comes instantly is the simplicity of taxes in the Indian real estate.

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