Developers Expect A Positive Impact Of GST On Real Estate; Some Questions Remain Unanswered

The Central government is all set to bring Goods and Services Tax on July 1. Real Estate, too is expecting major impact due to the new tax system. Though the developer community is welcoming the policy change, it is also raising concerns about the future of affordable housing, under-construction properties and all those related industries which are not yet considered by GST Council.  Meanwhile, here are few benefits that are being expected by the developers:

Check artificial price rise

GST will reduce costs for developers. Rather than paying multiple taxes, there will be a more uniform tax structure. “While there may be a rise in taxes at the final stage but the availability of credits on input taxes will not let the real burden of taxes increase. It will also help in validating transactions within the sector. Since the government has assured revenue-neutral rate, the consumer is not likely to get adversely affected. Additionally, it will help check artificial inflation in prices,” says Manju Yagnik, Vice-President, NAREDCO (National Real Estate Development Council) .

Save a lot of effort and time

“As an industry, we are all are waiting for the GST. We are welcoming it as there are a few advantages that come along with it. Today, there are a lot of different taxes that one has to pay such as VAT (Value-Added Tax) , octroi or the local body taxes. So, in this process a lot of labour will be saved and along with large sums of money,” says Diipesh Bhagtani, Chairman-Exhibition, CREDAI-MCHI (Confederation of Real Estate Developers Associations of India-Maharashtra Chamber of Housing Industry) .

A drop in tax liability

Real estate as a sector pays as much as 40 per cent in taxes. With GST, it can be a big advantage which can be passed on to the consumers.

“Most experts expect the GST rate to be at 18 per cent and the value of land to be not more than 25 per cent of total value of residential property. In this case, the consumer will pay 13.5 per cent which is significantly higher than current service tax or VAT rates across all states. But the developers might reduce costs due to input credit allowance if they are willing to pass on benefits to the end users. This percentage could mean a saving of up to 20 per cent,” says Amit Wadhwani, Director, Sai Estate Consultants. 

Overall with the implementation of GST, the consumers may have to pay some more taxes but can expect good developers to offer huge discounts provided the developers end up saving taxes.

Questions still left unanswered

Since the purpose of the single tax structure is to bring transparency and cut down the operational expenses, the proposed GST structure, as opposed to a single tax structure, has its own set of challenges at various level. Shubikha Bilkha, Business Head at The Real Estate Management Institute (REMI) raises these concerns:

As the government promotes a cashless economy that encourages the purchase of properties using institutional/bank finance, how then does the GST on EMIs for under construction impact the home-buyer?

With REITs slated to bring the much required cash flow into the real estate sector, how does the GST on leasing/renting within a REIT impact the overall returns for investors? 

While there is still confusion as to the overall impact of the GST on real estate, the coming time might bring relief for developers when GST council assess the impact on the property market and will come out with lesser taxes to boost home buyers sentiments.