GST rate cut: Good move for home buyers, not so much for real estate developers; here’s why

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Updated: February 25, 2019 9:42:35 PM

Even as the latest GST cut on under-construction housing projects is expected to increase demand, real estate developers may see mixed results, a report said.

one crore houses, narendra modi, modi government, Smart City Mission, Pradhan Mantri Awas Yojana, Swachh Bharat Mission, industry newsWith the RERA framework evolving and GST reduced, end-user confidence towards under-construction properties will improve, CRISIL said.

Even as the latest GST cut on under-construction housing projects is expected to increase demand, real estate developers may see mixed results, a report said. In the near-term, the real estate sector will see a marginal rise among the homebuyers on account of cut in the indirect tax rate, CRISIL Research said in a report.  However, the withdrawal of input tax credit (ITC) would impact the profitability of developers, it added.

CRISIL Research also said that with the decline in the overall transaction, the margins of developers may not see any improvement as construction costs would escalate in view of withdrawal of ITC and prices under pressure. But, on the liquidity front, the developers will be in a relatively better position as sales pick up at a slow rate, the report noted.

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“With the RERA framework evolving and GST reduced, end-user confidence towards under-construction properties will improve. This should also gradually improve volume growth and liquidity of cash-starved developers. Overall, the announcement would be neutral for developers”, Rahul Prithiani, Director, CRISIL Research, said.

The GST cut may help the home buyers, said Surendra Hiranandani, Founder & Director, House of Hiranandani, adding that the input tax credit could also have been given to the developers.

“This reduction will act as a catalyst and provide the much needed impetus to build upon the various initiatives announced in the Union Budget recently. It seems to be the perfect new year bonanza for millions of aspiring homebuyers looking to buy homes this year. However, for the industry as a whole it would have been better if input tax credit would have been made available to the developers,” Hiranandani said.

Meanwhile, the GST Council Sunday slashed tax rates on under-construction housing properties to 5 per cent without input tax credit, from the existing 12 per cent, Finance Minister Arun Jaitley said.

The Council also cut rates on affordable housing to 1 per cent from the current 8 per cent and expanded the scope of affordable housing to those costing up to Rs 45 lakh and measuring 60 sq metre in metros and 90 sq metre in non-metro cities. The new tax rates will come into effect from April 1, 2019.

  • The story was updated to correct the statement attributed to Surendra Hiranandani, Founder & Director, House of Hiranandani. The error is regretted.

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