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Affordable Housing Segment Has Potential To Mitigate Govt Covid Losses

The real estate sector will continue to play a key role in India’s journey towards becoming a 5 trillion-dollar economy

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The real estate sector in India is one of the largest employment generators second only to agriculture. The sector currently contributes as much as 7 per cent to the nation's GDP and is expected to reach 10 per cent over the next five years. Several structural reforms such as RERA and GST brought in by the government have restored buyer confidence by streamlining the sector and making it more transparent. These reforms have created a clear distinction between established players and fly-by-night operators, having brought in the much-required discipline in the way business is done. It resulted in two things, essentially industry consolidation and better value for money for the end customer.  It is a matter of pride that even through the worst pandemic when every industry sector including MSMEs, and manufacturing took a hit, the real estate sector continued to contribute substantially to the Indian economy through GST.  

The real estate sector will continue to play a key role in India’s journey towards becoming a 5 trillion-dollar economy. The real estate industry generates significant revenue for the Government. For instance, for a Rs 40 lakh apartment that is approximately 800 square feet, the government gets 18 per cent of the construction cost per square foot which is around Rs 450 per square foot at an estimated construction cost of Rs 2500 per square foot, and 1% GST for an affordable housing apartment which is around Rs 50 a square foot. Other revenues such as stamp duty, registration, electricity, water supply and property tax, add up to around Rs 700 to 800 per square foot for both the state and central government. All put together the government earns about Rs. 9.6 lakhs for an 800-square foot apartment priced at Rs 5000 a square foot. Therefore, for a customer purchasing a Rs 40 lakh apartment around 25 % of the cost of the apartment goes towards taxes. Projections suggest that India will require around 25 million additional affordable housing units by 2030 with rapid urbanization. This would also translate into significant income for both state and central governments by way of taxes.

Affordable housing is a priority for the Government of India and its objective of ‘Housing for All’ is a noble mission. It will have far reaching benefits for the country in terms of employment, revenue generation and most importantly social upliftment through better standards of living. With a few tweaks in the taxation structure, ‘Housing for All’ will have the capability to mitigate the losses incurred by the Government due to the pandemic. Some initiatives that the government can take to act as a catalyst in realising the PM’s dream of housing for all, includes reducing the tax burden on affordable housing. The restoration of input tax credit and removal of stamp duty for Affordable Housing will bring down the cost of an apartment by as much as Rs 1000 per square foot. These measures will encourage more people to consider affordable housing as opposed to a rented home. With an increase in people buying affordable housing units, the tax-payer base as well as the proportion of revenue for the government will automatically go up. The thrust on affordable housing by the government and the anticipated rising demand in the coming decades will give the segment the potential to become a major wealth creator for the country. It will also encourage established and trusted developers to venture into the affordable housing segment.

While the reforms introduced by the government in the real estate sector has had a positive impact with the sector witnessing significant growth, it would be a win-win situation for developers, buyers as well as the government if there is further impetus on the affordable housing sector.

The author is CMD, Shriram Properties

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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real estate GST Tax

M Murali

The author is Managing Director, Shriram Properties

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