Real estate developers fear that the new indirect taxation regime could raise project costs and scare homebuyers away

With the planned rollout of goods and services tax (GST) just a few days away, builders as well as homebuyers remain uncertain about the potential benefits of the new indirect taxation, even as the government insists it would be a game-changer for the economy.
Says Parth Mehta, managing director, Paradigm Realty, “Implementation of GST is not going to be as smooth as expected. There is bound to be some inflation with increased tax rates. The dual central and state government compliance is another issue that could turn out as a huge challenge for exports to different states.”
GST is all set to become operational from the midnight of June 30.
Real estate developers fear that GST could raise project costs and scare away homebuyers. On their part, buyers remain skeptical about builders’ intention; they feel that the builder could pocket all the tax benefits themselves leaving him shortchanged.
Demand for ready-to-move-in flats and apartments, for which builders have obtained occupancy certificates from the competent authority, is likely to pick up under the GST regime. The reason is there will be no tax applicable on such properties under the new indirect tax regime. Does it mean that the builders will pass on the tax benefit to customers?
Buyers will also have to shell out 12 per cent GST if they buy flats or apartments in ongoing projects. The current incidence of indirect taxes excluding stamp duty on under-construction projects works to 4.5 per cent, which is much lower than the rate envisaged under the GST. Although full credit will be available to builders on taxes paid for inputs, they may not pass it on to buyers.
Points out Pradeep Aggarwal, co–founder and chairman, Signature Global, “With prices going up post the tax reform, the government will have to find out ways of minimising the effect of this rise on the average Indian homebuyers. Banks will have to be pushed to further lower down on their lending rates, ensuring that the end payout remains the same in cases of property purchases.”
However, Akshay Taneja, MD, TDI Infratech, differs. Steel currently attracts taxes in the range of 18-19 per cent, but post GST, will be fixed at a uniform rate of 18 per cent.
“This goes on to show that the effect of GST on steel would be bare minimum, but what everyone is looking at are the inputs of the steel industry like coal and iron ore, which have been finalised under the GST slab of 5 per cent and might influence steel prices to come down and hence benefit the real estate sector in the long run,” he says.
Gaurav Gupta, general secretary, Credai– RNE, is apprehensive that the GST could make properties costlier. Prices of properties are bound to go up post the implementation of GST, as under-construction projects will attract taxes in the slab of 12 per cent as against the previous 4.5 per cent approx.
“With no other rebates from stamp duty and other verticals, homebuyers are certain to face the brunt. The only respite would be from developers to judiciously pass on the benefits of input tax credits, if any applicable, to the buyers,” says Gupta.
Points out Dhiraj Jain, director, Mahagun Group, “The current tax slab of 24-25 per cent on cements would be revised to 28 per cent with the implementation of GST. This will directly influence the construction cost of a project, ultimately pushing the prices of properties higher."
“Although, by and large, GST is accepted as a long-term structural reform for Indian tax system, realty players are a bit skeptical about its benefits due to ambiguity over implementation,” says Surabhi Arora, senior associate director, research, Colliers International India.
“As the sector is preparing itself for Rera compliance, which itself is a major reform, the GST has further added to the complication, and the fear of business discontinuity for the short term is making players apprehensive about the change. The real estate cycle is likely to change significantly after the implementation of both these reforms,” Arora adds.
Srinivasan Gopalan, group CEO - Ozone Group, said that for commercial real estate, GST would be neutral, though it could push costs of residential properties.