Implementation of GST has been creating a buzz in the realty industry for the past one year with both homebuyers, as well as realtors, feeling the apprehension of its potentially disruptive effects on the industry.
While homebuyers were keeping away from investing till recently, builders have been taking it easy too and not announcing too many new projects. There was about a 60% slowdown in sales in the top 6 cities in India during the first three quarters of 2017. The plus side to this situation was that with fewer new projects launched, the demand-supply of homes finally reached a balance, thus imparting equilibrium to the realty market.
Furthermore, with the new attractive home loan rates, flexibility in payment plans as well as other freebies offered by builders, has all led to increased sales of unsold inventory in the mid-segment sector, increasing builders financial solvency. In the long term, GST is expected to be a sentiment booster for the real estate industry and the industry is estimated to contribute up to 13% to the overall GDP of the country by 2028. This isn’t a utopian prediction and is believed to be tenable because of the various other reforms poised to redefine the real estate sector; the figure is expected to be attained by boosting buyer sentiments as well as improving investment inflows from domestic and foreign institutional investors.
Implementation of GST is also expected to introduce greater transparency in the taxation system. It’s also proposed that prices might drop by up to 3% in the near future. Earlier, buyers were expected to pay taxes depending on the construction status of the building as well as the state in which it was located. Under-construction properties earlier attracted service tax, VAT, stamp duty and registration charges while completed properties attracted stamp duty and registration charges.
While some of these taxes were state taxes and others were central government taxes, calculating taxes was a tedious process in the earlier regime. However, with taxes becoming more uniform, and a fixed tax percentage being applied to the sector, builders have to pass on the benefits to the consumers, implying lower home rates.
Builders also stand to benefit as the cost of logistics has gone down with the single tax system along with a reduction in the tax burden; this means lower overall building costs and an increase in profit margins.
Overall, GST has given both the homebuyers as well as the builders’ reasons to smile!