GST rate cut to have little impact on realty prices

Vijay C Roy
Tribune News Service
Chandigarh, February 25

Are you planning to buy your dream flat, thinking it will be substantially cheaper from April 1 following the government’s decision to cut GST for under-construction projects, think again! Anticipating that the elimination of input tax credit (ITC) benefit may hit developers’ profits, they are planning to revise the prices   between 1 and 3%, depending upon the market in Punjab. Thus, the GST rate cut will not have much impact on the prices as anticipated by the home buyers.  

According to experts, the number of under-construction flats in Dera Bassi, Mohali, Kharar, Patiala, Rajpura, Ludhiana, Jalandhar and Amritsar is more than 10,000.

“The government has reduced GST to 5% for under-construction flats from 12% earlier and 1% from 8% in case of affordable housing. If we read the fine print, input tax credit has been abolished, which, in turn, will increase the cost of construction,” said Sanyam Dudeja, director, Jubilee Group.

Neeraj Kansal, director, Royal Estate, said: “It is disappointing that the GST Council has decided not to allow the developers claim input tax credit. The real estate sector is in a very poor shape and needs significant help from the government to finish the current projects and grow at a rate that is needed for the economy.”

“After the announcement of GST rate cut, the industry is thinking of revising the prices because of hike in input costs. The raise will be anywhere between 1 and 3% depending upon the market,” said a builder based out of Punjab, requesting anonymity. 

According to developers, some of the builders in Punjab used to pass on a share of input tax credit to buyers by paying half of the GST amount to clear the inventory. For example, if a flat cost Rs 30 lakh, the GST payable by the buyer was Rs 2.40 lakh (@8%). Some builders in Punjab, especially in Mohali, used to pay Rs 1.20 lakh on behalf of the buyers as they were entitled to get input tax credit. Now, since the government has announced to lower the GST rate and eliminated the input tax credit, the developers are of the view that it will impact their bottomlines.

“Though the GST Council’s recommendations will boost the affordable housing segment, we expect that the cost of developers may go up marginally because of discontinuation of input tax credit,” said Prateek Mittal, executive director, Sushma Group.

However, tax consultant Sumit K Batra said, “While expanding the definition of ‘affordable housing projects’ and covering houses up to Rs 45 lakh and those measuring up to 60 sq mt in metros and 90 sq mt in non-metros and reducing the GST from 8% to 1%, the government has tried hard to push ahead its agenda of ‘Housing for All’, it is not the only factor which will push the sales and overall availability of funds in the economy will ultimately decide whether this move will be able to revive the stressed real estate sector.”

Current scenario in Punjab

Number of under-construction flats: Over 10,000

Major areas: Dera Bassi, Mohali, Kharar, Patiala, Rajpura Ludhiana, Jalandhar, Amritsar