More Fine Tuning Required
Textiles, MSMEs were among those adversely impacted by the GST rollout. We look at one more such sector — real estate
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For the real estate sector, the implementation of Goods and Services Tax (GST) may have created a level playing field for organised developers. And reduced tax rate on construction materials (cement and steel) may also have brought down the cost of construction. “This in turn translates into lower acquisition cost for under-constructed apartments, giving rise to buyer interest and demand, which again benefits the buyer,” says Ashish R.Puravankara, managing director of Puravankara. There are some more benefits, says Anshuman Magazine, chairman, India and South East Asia, CBRE. “The warehousing sector has attracted interest from domestic as well as national players, resulting in the emergence of better quality, investment-worthy assets,” he says adding the introduction of Real Estate Investment Trusts will further offer an exit route to investors and developers, thereby making investment in real estate a more lucrative opportunity.
But Niranjan Hiranandani, president of National Real Estate Development Council, says post RERA and GST, real estate is facing challenging times. “We estimate the savings in terms of actual construction material costs to have a positive impact, with actual savings in terms of a lower GST rate may be marginal,” he says.
ANAROCK Property Consultants chairman Anuj Puri, says while GST was touted to be a game changer providing respite to homebuyers by way of reduced property prices, it turns out that these expectations were unrealistic. “While the tax-on-tax has been eliminated with the advent of GST, the overall outgo from homebuyers’ pockets seems to have increased by as much as 8 per cent across cities. This ultimately reduces the demand in real estate. Also, the higher tax rate on purchasing a home — an already staggering expense for most Indians — has kept many home buyers and investors off the market,” adds Puri.
What has been the impact of GST on residential properties? According to Bengaluru’s Shriram Properties MD M. Murali, the biggest perception of a consumer is that GST ‘by default’ provides a price benefit for all projects, but the actual price reduction is based on passing of cost savings achieved. “Customers going in for affordable housing projects will reap the maximum benefits, whereas such benefits may get reduced as the segment moves towards luxury and ultra-luxury sectors. Similarly, in projects where the land cost is low, the savings can be significant,” he adds.
While the developers may intend to pass on the benefit to end users, the industry is still grappling to determine the actual benefit on account of GST. There is lack of clarity on how the benefit, if at all any, has to be computed, like the period or the factors to be considered, etc. Allocation of input tax credit to under construction projects is yet another challenge, developers say.
Surendra Hiranandani, CMD of House of Hiranandani, says there’s been no significant impact on property prices post GST. “We are confident of its benefits in the long run if the government clarifies a few issues faced by our industry,” he says. What are these issues? Abatement of land cost and status on Stamp Duty vis-a-vis GST continue to trouble developers.
Another problem with GST, Puri says, is that it was restricted to under-construction properties, while ready-to-move-in homes and land were exempted from it. This considerably reduced end-user demand for under-construction properties, he adds and backs up his argument with data. He says builders have reduced the supply of the new housing projects. As per ANAROCK data, approximately 68,500 units were launched between January and May 2018 across seven cities, which is 4 per cent lower than the new launch figures for January-May 2017 (approximately 71,500 units). Further, despite government’s consistent efforts to promote affordable housing, this critical segment is yet to see any significant positive impact of GST.
At present, consumers can avail benefits only on projects nearing completion or completed post-implementation of GST. For most projects the benefit may not exceed five per cent of the overall construction cost. It is important the government engages with stakeholders to address their concerns and work in harmony to bring more clarity for the sector.