Reduced GST on construction materials like cement is expected to prop up sales in the affordable housing which had been hit by spiralling prices and high interest rates, experts and analysts said.
GST on cement has been brought down from 28% to 18% while the rates on construction and finishing materials have fallen from 12% to 5%.
The reduction in GST is expected to reduce costs, which, in turn, will reduce pricing of apartments and boost demand. Affordable housing, where houses are priced below Rs 40 lakh, has seen its share of total sales decline from 38% in 2019 to 18% in 2024. The share of new supply saw a sharper fall – from 40% in 2019 to 12% in H12025, Anarock Research said.
Cement accounts for nearly 20% of the total construction cost in residential projects, and with the earlier 28% GST being embedded in that cost (being non-creditable), it had a substantial impact on the overall pricing, according to Sohrab Bararia, partner – indirect tax, Grant Thornton Bharat.
Timely boost for a stagnant sector
“Affordable housing stands to gain as reduced construction costs can be passed on to homebuyers, making homes more accessible, while supporting the government’s ‘Housing for All’ vision,” said Niranjan Hiranandani, managing director of Hiranandani group and chairman of industry body Naredco.
Venkatesh Gopalakrishnan, director, group promoter’s office and MD of Shapoorji Pallonji Real Estate, said construction costs could come down by up to 5%. “This offers scope for improved margins as well as better pricing for end-users.”
“The rate cut will significantly ease project costs for developers and boost affordability for homebuyers. For developers, this relief lowers input costs and strengthens project viability,” Gopalakrishnan said.
Multiplier effect on developers and consumers
He said rising construction costs and pressure on margins did pose significant challenges to the affordable and mid-income housing, adding that the potential pass-through of savings will encourage demand. It will also enable more accessible homeownership.
“The 10% reduction in GST on cement is a significant move that could enhance housing affordability. This tax cut is expected to bring down construction costs, making residential housing more accessible to homebuyers,” said Bararia.
Anuj Puri, chairman at Anarock, said developers, especially those in affordable housing, will get a major relief in terms of cash flows and margins. The country currently has a shortfall of nearly 10 million budget homes in urban markets, and this number could rise to 25 million by 2030 in the absence of focused interventions, he said.
Dharmender Tuteja, CFO, Dalmia Bharat, said rate simplification and higher purchasing power will increase the affordability of housing for middle- and lower-income groups, spurring demand for cement.”
Anupama Reddy, vice president and co-group head, ICRA, said rural housing will be a key beneficiary of the rate cut in cement. “With cement accounting for nearly 10-12% of total construction costs in rural housing, the government decision translates into a 0.8%–1.0% reduction in overall construction expenses.”
The price benefit of Rs 26-28 per bag of cement will be transferred to retail customers, without materially affecting profitability of manufacturers, she said.