Demand for Residential Properties Is Expected to Rise with New GST Rate Cut

The latest Union Budget in India brought favorable policies in real estate while benefitting homebuyers. The demand for residential properties has been fully anticipated to rise. As one more progressive step, the government decides to cut the goods & services tax (GST) rates for under-construction projects to 5 percent from an effective rate of 12 percent.

This latest announcement by the government gives homebuyers one more reason to look forward to buying property. This decision is likely going to be a major push to the stated objective of ‘Housing For All by 2022’, reducing GST to marginal 1 percent for affordable housing while revising the definition of such homes.
Prior to the announcement, under-construction residential properties attracted a rate of 18 percent and an effective rate of 12 percent after factoring one-third abatement for the value of land. Also, the effective GST rate for affordable housing was 8 percent. On the other hand, ready properties that have received the occupancy certificate (OC) do not attract GST. The government stays firm on its agenda to push affordable homes by reducing GST to a mere 1 percent for this segment. The lower tax burden on home buyers is expected to push demand in the segment of under-construction properties. More importantly, the developers will stay committed to building more affordable homes. As a result, the significant step on GST is expected to help the government steadfastly move towards achieving its target of Housing for All by 2022. 

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The Finance Minister Arun Jaitley said, "We wanted to give a boost to the real estate sector as well as give relief to the middle class, neo-middle class, and the aspirational middle class. This will come into effect on 1 April 2019".

“The reduction of GST on Affordable Housing to 1 percent is a revolutionary move for the Indian real estate. This move is a significant triumph for home buyers and will play a huge role in boosting their sentiments,” said Jaxay Shah, National President of realtors’ body the Confederation of Real Estate Developers Association of India (CREDAI). 

The under-construction segment has been suffering from low sales levels for the last many quarters. The move to reduce GST will give the necessary boost to the demand in under -construction segment, stimulating the demand and sales.

The credit rating agency Moody's stated, “The reduction in GST is credit positive for India’s property developers because the reduction in tax will boost demand and increase sales of properties under construction. India’s real estate sector has weathered difficulties in the last few years amid price reductions from a glut of inventory and lackluster demand. The reduction in GST will improve housing affordability as the amount to be paid by a potential house buyer will be reduced, which will increase demand for property. The reduction in GST rate on affordable housing is in line with the government’s increased focus on this segment. The new GST measures eliminate the ability to claim the input tax credit, which may hit the profitability of the developers".