Defying consensus estimate that the Goods and Services tax regime would impact housing prices by 5-6%, Mumbai-based real estate major, Oberoi Realty, has managed to keep prices unchanged across its suburban projects. The company ran a campaign — Zero GST — to emphasise this point. Effective July 1, the company launched this scheme across its Goregaon, Mulund and Borivili projects, wherein it continued levying the pre-GST rate of 5.5% versus 12%, passing on the input credit advantage upfront to customers. The idea was to assure home buyers that the new tax will not as such bring in any uncertainty in housing prices.
Sector analysts said a large player like Oberoi Realty might propel others to follow suit. “We believe Oberoi’s move on passing the GST benefit is going to be market defining as the company is considered premium in comparison to its peers,” one research paper stated. However, as chairman and managing director of Oberoi Realty, Vikas Oberoi pointed out, while the company will be more than willing to drive the sector towards higher transparency in pricing, it might be difficult for developers to adopt such a strategy for projects, especially where the land cost is too high. “Of course, the customers will push developers to keep prices stable,” Oberoi reiterated.
Industry experts agreed it might not be a case of simple ripple effect. In its own south Mumbai market, Oberoi was not able to pass on the benefit. “Wherever land cost will be higher than the assumed 33%, it will get tough to pass on the benefit, especially if the gap is significant,” said Gaurav Gupta, co promoter and director, Omkar Realtors. As a result, it might effectively mean that the positive impact on prices will be limited to suburban, end-user driven, more affordable projects and not the high-end or luxury segment. In some cases, land costs in those projects are as high as 70%.
“Construction costs are also not similar in all geographies so it is too early to predict how each company will respond to GST,” said Anshul Jain, managing director of Cushman and Wakefield (India). But on a more general level, it can be expected that barring the high-end segment, most companies will attempt a neutral effect.
“The market reality is such that consumers are particularly sensitive to pricing, something that developers can hardly afford at the moment,” said Samantak Das, national director of research at Knight Frank, India. So it is to their benefit not to extend the tax burden, Das added. Of course, in cases, it will translate to a squeeze in margins. Meanwhile, Oberoi posted muted sales impacts performance during the quarter, with sales of 0.1 million sq ft, 30% lower than last year. Collections also suffered on account of customer agreement being modified to comply with RERA.