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GST may spike real estate prices in Pune

Starting July 1, India will witness the historic step in the tax regime with GST coming into an effect based on the principle of ‘One Nation One Tax’

pune Updated: Jun 29, 2017 23:33 IST
Prachi Bari
Starting July 1, India will witness the historic step in the tax regime with GST coming into an effect based on the principle of ‘One Nation One Tax’
Starting July 1, India will witness the historic step in the tax regime with GST coming into an effect based on the principle of ‘One Nation One Tax’(HT Photo)

The all-India builders’ body CREDAI, Pune chapter, yesterday said that there is a likelihood of a rise in real estate prices following the implementation of Goods and Services Tax (GST) from July 1 across the nation.

Shrikant Paranjape, President CREDAI Pune Metro, announced this at a press conference.

Starting July 1, India will witness the historic step in the tax regime with GST coming into an effect based on the principle of ‘One Nation One Tax’.

“We welcome GST as a major structural tax reform. Steps like Real Estate Regulatory Authority (Rera) and GST will increase transparency in the segment and we believe that real estate developers will pass on tax credits to the customer,” Paranjape explained.

“However, the extent of benefits that can be passed on to the customer will depend on various parameters such as the stage of project, land value embedded in price, total sales made, the cost of the house already paid for by the customer, etc. Considering the nature of real estate functioning, each project may be different for GST calculations. Similarly, cost benefits due to GST to each customer may also differ,” he explained.  

The benefit to be passed on to the customer can be properly assessed only towards the completion of project. Accordingly, most of the customers who will be affected are those whose projects are in transition. 

“Cement and steel prices soar without warning. Sand is always in short supply and not available in the monsoon. It is likely that these industries may not pass on the entire benefit of tax credit. Another factor that will determine the passing of the benefit to purchasers is the price tag of the real estate. The prices of real estate depend on land value,” he added.

The land cost of affordable housing can be as low as Rs 200-400 per sq ft, whereas that of a high value apartment can be as high as 10,000 per sq ft. 

Thus, land contribution can very between 10% to 80 % of the total cost. It is pertinent to note that there is no GST on land.

“Obviously, no input credit is available with respect to the major raw material, land. If no input credit is available for 80% of the cost, the overall percentage of credit of the tax collected will be negligible and virtually no benefit may be passed on to the purchaser, who bears 12% tax including the value of the land . At the same time in case of low cost housing, the land component may be negligible and substantial benefit can be passed on,” Paranjape said.