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Changes in GST rates expected to boost realty market in Gurugram, say experts

The decision by the GST Council to cut tax rate on under-construction residential properties from 12% to 5% and on affordable housing from 8% to 1% is expected to boost real estate demand and also encourage sale of such properties, said real estate stakeholders in Gurugram.

gurgaon Updated: Feb 27, 2019 04:52 IST
Abhishek Behl
Abhishek Behl
Hindustan Times, Gurugram
GST,realty,Gurugram
Developers and real estate experts pointed out that it will take at least two to three months to realise the full impact of the reduction of rates on the market. The new rates will come into effect from April 1. (Picture for representation)

The decision by the Goods and Services Tax (GST) Council on Sunday,February 24, to cut the tax rate on under-construction residential properties from 12% to 5% and that on affordable housing from 8% to 1% is expected to boost real estate demand and also encourage the sale of such properties, said real estate stakeholders in the city.

Developers and real estate experts, however, pointed out that it will take at least two to three months to realise the full impact of the reduction of rates on the market. The new rates will come into effect from April 1.

Furthermore, the decision by the council to change the definition of affordable housing by increasing the price point and plot area is also being seen as a big booster to the industry, say experts. They, however, said that lack of funds and liquidity crunch being faced by the industry also need a speedy solution to revive the industry as a whole.

While describing the move as a big booster, Gurugram-based developers said that the elimination of input credit tax may increase their costs and hit profitability, but if adequate demand is generated, it could still improve overall sales and revenue. Real estate experts said that this move will also reduce the transaction cost in property deals that becomes high when stamp duty and other taxes are added.

“We expect the cut in tax rates to stimulate demand for real estate projects. This will also bring about a positive change in the consumer sentiments,” said Rajeev Talwar, CEO and chairman, National Real Estate Development Council(NAREDCO).

The GST council has also redefined the definition of affordable housing on the basis of carpet area and cost. As per the new rules, a residential unit with a carpet area of up to 90 square metres in non-metropolitan cities and 60 square metres in metropolitan cities, costing up to Rs 45 lakh, will now come under the ambit of affordable category. Gurugram will come under the category of metropolitan cities along with Delhi, Noida, Greater Noida, Ghaziabad and Faridabad in the National Capital Region(NCR). Other metro cities would include Bengaluru, Chennai, Hyderabad, Kolkota and Mumbai, as per the GST Council.

Gurugram-based developer M3M said that buyers in both affordable and premium segments will be benefitted due to the GST rate cuts. “There was a huge arbitrage between developed properties and under-construction properties, but this will end now. We will have to take a hit on input tax credit, which would not be available, but developers will have to take that in their stride, as the new tax regime will ultimately help in keeping the account books clean,” said Pankaj Bansal, director, M3M.

While the realtors are bullish about this move, experts also see the changes as positive ones. However, they want the government to not only push the demand side of the market but also encourage the supply side. Moves such as the GST rate cut, low interest regime, and other tax benefits on housing will help buyers and push the demand, but the government needs to push the supply side as well, they added.

Encouraging the supply side of the market is equally important as there are over 75,000 apartments on the Dwarka Expressway in Gurugram that are awaiting completion.

In recent times, the real estate market in city has been witnessing a slump because many developers have not been able to complete their projects, due to paucity of funds. Many developers have simply vanished leaving the buyers in a lurch, said experts.

“To encourage supply, the government must help real estate industry to overcome the fund crisis and lack of cash, which result in delays in real estate projects. Funds are too expensive right now. The banks have become very strict with lending; non-banking finance companies are also in a poor shape, while private equity has become unviable,” said Vinod Behl, a real estate industry expert.

Ashutosh Limaye, research head, JLL, said that the GST rate cut will prompt fence sitters to enter the market and make purchase decisions. “These moves are going to reduce the overall cost of transactions and help buyers. It will boost consumer sentiments and encourage demand,” he adds.

However, Ramesh Menon of Certes Realty said that it will take at least three months for the results to show. “No one is rushing to buy new homes as elections are near, although some absorption has happened . Prices however will remain soft and the developers will have to meet the challenges of meeting the higher costs of raw materials, credit and overrun costs,” he said.

First Published: Feb 27, 2019 04:52 IST