With sales recovering in most of the cities in 2018, the cut in GST rates will aid in expediting the liquidation of under construction stock.
2019 started with a promising New India budget which addressed key pain points for homebuyers and developers, and lay adequate focus on affordable housing. This was followed by RBI’s decision to reduce repo rate by 25 bps further boosting the housing market that was already showing signs of recovery since 2018.
To add to this impetus, the reduction in goods & services tax (GST) on under construction property from an effective 12% to 5% without Input Tax Credit (ITC) and on affordable housing from 8% to 1% without ITC will provide a significant boost in fuelling residential sales in this segment. The GST council has considered 60 and 90 sq mt for metros and non-metros respectively for affordable housing. Additionally, the council has considered ticket size of INR 45 lakhs as affordable.
With sales recovering in most of the cities in 2018, the cut in GST rates will aid in expediting the liquidation of under construction stock. It is pertinent to note that the offtake of units remained slow in this segment post the implementation of GST in July 2017 owing to higher tax incidence and lack of clarity with respect to input tax credit (ITC).
The revised GST rates have simplified the tax levy and does not provide the benefit of ITC separately. This augurs well for homebuyers as the process of passing on the ITC under the erstwhile system was a complex issue. This reduction in GST in the hands of the homebuyer will revitalize buying sentiments, effecting higher purchases. The reduced rates on affordable housing thus complements the efforts of the recent Budget to improve liquidity in the lower income segment through demand-side interventions. This move will give impetus to the real estate sector, and make housing affordable for middle-class, neo-middle class and aspirational class.