The latest decision by the government to reduce the GST rate on under-development properties from 12 to 5 percent is all set to escalate the demand for residential properties across the country. The GST council has redefined the meaning of affordable housing in India with reducing the GST on properties priced below Rs 45 lakh to nominal one percent. The demand for under-development affordable units is predicted to increase considerably with this step which will help in evacuating the huge stock of unsold properties in the country.

The affordable housing sector contributes around 60 percent of the total housing inventory in the country with an average of almost two years’ worth of unsold stock. According to the experts, this step of the government was always on the cards lately due to the huge number of affordable under-development units being delayed or struck due to various obstacles. Om Ahuja, CEO of a prominent real estate entity said that the GST rate deduction will be a fleeting imbuement of notional positive assumption which will encourage the hesitated buyers to take the benefit of this action resulting in a huge boost in affordable housing sales.

Some of the most common questions that have popped into people’s mind after this declaration is that will it be able to boost the sales of the under-development project and will it make the houses cheaper. The answer to these curiosities is that with the GST rate deduction and removal of Input Tax Credit (ITC), the prices of the properties are going to be higher eventually.

Let’s talk about how this is going to happen.

Now with the latest tax adjustment, the remunerative prospect for the developers will be lessened further. The removal of ITC will ensure an extra load on the builders. Earlier, ITC used to allow them to claim credits on the taxes imposed for buying the raw materials thus reducing some of the tax burdens. Now, there is going to be more pressure on the builders following the abolition of ITC advantages.

The banks nowadays are very cautious when it comes to lending money to the developers due to the increasing debts and several delays in the projects. All this has resulted in a huge collapse in the property market as the developers are massively reliant on institutional borrowing for building purposes.

It is very likely that the housing sales will be witnessing a considerable rise in the coming times because of overall less transaction prices. However, the remuneration amount for developers is very unlikely to improve considering the rise in construction costs due to the absence of ITC benefits. This will force the developers to compensate for their losses by increasing the prices of properties.

For the purpose of providing the effective advantages of GST rate cut to the homebuyers, the government need to make some adjustments that include-

GST rate deduction on the raw materials

One major obstacle in the path of building profitable affordable homes is the high prices of materials used in the building processes. Hefty GST rates on the raw materials like 18 percent on steel, 28 percent on cement, and so on, restricts the developers in various ways along with reducing the profit margins which leads to an upsurge in property rates. Any kind of deduction of GST on these materials will surely help in building more affordable units across the nation.

A Dedicated Fund for Affordable Houses

In order to accelerate the completion of affordable homes under the Pradhan Mantri Awas Yojna, the government had arranged a dedicated affordable housing fund to raise money from non-budgetary resources. The chronically struck projects in the country need a similar committed fund allocation to offer low financing options for the homebuyers.

Single Window Clearance Mechanism

One of the most prolonged demands from the developers which has still not been implemented in the real estate is the single window clearance. The non-existence of this kind of planned body results in the delay in getting the clearance certificates which create problems in construction works and possession timings along with 40 percent cost escalation.

Use of Modern Technology

In the ongoing situation, advanced construction techniques need to be adapted in order to develop a real estate project within the committed time and budget. For example, nowadays the builders have started to use AAC blocks instead of red bricks which are way economical and lighter.

The integration of RERA followed by the deduction of GST rates is definitely a right step from the government to propel the real estate industry. However, in order to offer the most effective advantages of this cut in the GST rate, many comprehensive adjustments are much needed. In the current scenario, the affordable housing sector is very likely to entice the homebuyers in the coming times as it is being considered as the most perfect time to invest in residential properties.

Disclaimer : The perspectives communicated above are for instructive purposes which are simply dependent on industry outlines and related documents. Per Square Feet does not ensure the exactness, perfection, or the absolute quality of the data and will not be considered in charge of any reaction dependent on the published data.