GST rate cut on cement and building materials may reduce real estate costs by 3-5%, attract first-time homebuyers

Two-slab GST structure may cut construction costs by 3–5%, boosting affordable housing, buyer confidence, and investments in tier-2 and 3 cities

Reduced GST on construction materials such as cement is expected to cut construction costs by 3–5%, offering real estate developers, particularly those in the affordable housing segment, relief in terms of cash flows and margins, say experts.

Reduced GST on construction materials such as cement is expected to cut construction costs by 3–5%. (Photo for representational purposes only) (Pixabay)

The new simplified GST structure replaces the earlier five-slab system with just two primary slabs of 5% and 18%, alongside a 40% rate for luxury and ‘sin goods’.

This clarity in pricing is likely to strengthen consumer confidence, making the tax implications of homebuying easier to understand and encouraging more first-time buyers and fence-sitters to enter the market. The impact is expected to be especially strong in tier-II and tier-III cities. The reform will draw greater institutional investment into Indian real estate while boosting housing supply nationwide, an analysis by Anarock has said.

“Reduced GST on construction materials like cement can reduce construction costs by as much as 3-5%. Developers, especially those engaged in creating affordable housing, will get major relief in terms of cash flows and margins,” said Anuj Puri, chairman, Anarock Group.

“For developers, this relief lowers input costs and strengthens project viability. Industry voices estimate that overall construction costs could decline up to 5%. This offers scope for improved margins, as well as better pricing for end-users,” said Venkatesh Gopalakrishnan, Director Group Promoter’s Office, MD - Shapoorji Pallonji Real Estate (SPRE).

“From the perspective of the housing market, especially the affordable and mid-income segments, this development is timely and impactful. Rising construction costs and pressure on margins have presented significant challenges to the sector. The potential pass-through of savings will encourage renewed demand. It will also enable more accessible homeownership,” he said.

CREDAI-MCHI says GST cut on construction materials may have modest impact on overall costs

CREDAI-MCHI, the apex body of real estate developers in the Mumbai Metropolitan Region (MMR) said the reduction of GST on construction materials such as cement (28% to 18%) and sand-lime bricks/stone inlay work (12% to 5%) is expected to provide some relief to developers, though its impact on overall costs will be modest as developers largely procure materials indirectly through vendors who already avail input tax credits.

With construction being a core component of real estate, these reforms will have a marginal impact on construction costs, though certain materials directly purchased by developers such as marble and granite will become cheaper. Homebuyers may see a modest price reduction due to the absence of input tax credits on residential projects. However, the broader GST rationalisation across sectors is expected to boost disposable incomes and spur housing demand.

Sukhraj Nahar, president, CREDAI-MCHI said, “CREDAI-MCHI welcomes the government’s initiative to rationalise GST rates on key construction inputs like cement and sand-lime bricks. While the cost relief to developers and homebuyers is modest at this stage, this is a step in the right direction towards improving affordability and enhancing housing demand in MMR."

“We remain hopeful that the government will soon address the industry’s long-standing request to retain the 1% GST slab on affordable housing while rationalising the ₹45 lakh price cap, a reform that can significantly accelerate Housing for All by 2030,” he said.

"We await clarity from the government on affordable housing benefits, which remain critical for driving first-time homeownership in MMR,” said Rushi Mehta, secretary, CREDAI-MCHI.