GST on real estate: What it means for the homebuyer
In case you see a change in real estate pricing, it is largely due to the GST reduction that happened in February this year and also depends on the market environment.
When the Goods and Services Tax (GST) Council meet last week, the outcome was that now real estate developers could choose either to opt for old GST rate with input tax credit benefit or go for the new reduced GST rate without input tax credit. This change for the developer will have no impact for you as a homebuyer.
Here is why:
Before the February GST Council meeting, the GST on real estate was 12% with input tax credit and for affordable housing it was 8% with input tax credit. Input tax credit is the credit on the material used for the project. In February, this was revised to 5% without input credit and for affordable housing it was 1% without input credit. Majority of the developers were unhappy about the change. Their issue was not with the new GST rate but about the input tax credit which the government dropped in the change.
After the developers expressed their concern about the input tax credit, the government decided to provide a choice. “There was justifiable worry about what would happen to the input stock which they have accumulated much before as part of their long-term purchases. For them, this new move will be beneficial,” said Anuj Puri, the chairman of Anarock Property Consultants.
Also, projects in which constructions have commenced before 1 April 2019, the developer will have the option to opt for the old or new GST rate. However, for the projects which will start after 1 April 2019, the developer will have to opt for the new GST rate. Real estate experts said that the GST Council’s announcement made last week, was almost on expected lines. “The Election Commission’s model code of conduct is in force, and reducing taxes at this point could have been interpreted as a move to woo voters,” noted Puri.
Why you will see no impact
If you are planning to buy a house, last week’s development will have no impact on your pricing. For buyers, the perspective in February itself showed that prices will come down. Last week’s announcement gives developers a breathing space. Though the government has given an option for developers, largely they will have to work on the pricing based on the market condition.
Arvind Nandan, the executive director-research of Knight Frank India, said, “The sellers’ objective is to get maximum pricing that can be obtained from the market. But that is usually limited by the buyer’s capacity.” In this case also, the developer will want to stretch it to the maximum. “However, the market has limited the pricing very strongly in the last several years. There is no scope to increase pricing as of now. On the contrary every opportunity for the price to decrease they will have to make the adjustment,” Nandan said.
According to real estate experts, developers don’t have scope to move prices upward. The home prices will basically have no impact due to the recent announcement by the GST Council. In case you see a change in pricing, it is largely due to the GST reduction that happened in February this year and also depends on the market environment. Also, GST reduction should not be the sole reason for you to buy a house.