GST Council Approves 5% Rate For Under-Construction Properties
Finance Minister Arun Jaitley with state finance ministers at the 33rd GST Council meeting, on Feb 24, 2019. (Photograph: PTI)

GST Council Approves 5% Rate For Under-Construction Properties

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What The Real Estate Sector Thinks

A 5 percent GST on under-construction properties will make a “world of difference” for the properties whose construction was in progress, says Niranjan Hiranandani, the Managing Director of Hiranandani Group. He said that the current change in rates brings clarity on input tax credit and other issues at the time of occupation.

Chetan Shah, the Chairman and Managing Director of Marathon NextGen Realty said that while the rate cut is a good move what happens from here till Apr. 1 2019 is the issue. “.. there will be people who will unnecessarily wait till March 31. they should have made this (rate cut) applicable immediately from tomorrow itself.”

Could Lead To Increased Costs

Hiranandani expected a cut in the GST on cement. “That needed to happen since cement is a big factor in infrastructure and housing.”

Costs needs to be controlled, in terms of cement and other elements that go into making a product so that the input credit, which gets lost, is actually reduced so that “true costs can be passed on by the developers,” Shah said.

Although a good news for home buyers, developers will be burdened with GST payments to vendors, suppliers, agencies and contractors, says Parth Mehta, Managing Director, Paradigm Realty. “..this will land up increasing cost further amidst the already shrinking margin in business due to dynamic policies implemented by government.” Subtracting the ITC may not be a great move for the progress of Prime Minister Narendra Modi’s ‘Housing for all by 2022’, he said.

The ITC will have to continue or else it will put the entire tax burden on developers hitting the real estate down further.
Parth Mehta, Managing Director, Paradigm Realty

Real Estate Industry Experts Analyse GST Council Changes

'Breathing Room For Realty Sector'

The slash in GST rates for affordable and non-affordable houses gives the “beleaguered realty sector the much-needed breathing room” and will help it maintain some forward momentum in 2019, says ANAROCK Property Consultants Chairman Anuj Puri. “Another booster shot given by the government is changing the very definition of the budget-range of affordable housing.”

...there are as many as 5.88 lakh under-construction homes lying unsold in the top seven cities. Of these, 34 percent are priced below Rs 40 lakh alone.
Anuj Puri, Chairman, ANAROCK Property Consultants 

With affordable housing now being defined within Rs 45 lakh budget, more properties qualify for this ‘sweet spot category, he said. Puri thinks the GST cut, coupled with this critical change in definition, will induce more sales in homes falling in this budget range, which could be a “win-win” for builder and buyers.

GST On Lotteries To Be Discussed In Another Meeting

The state-run lotteries directly run by the state are levied with a GST of 12 percent, currently. The state-authorised lotteries run by the state's agents have a GST of 28 percent.

The north-east states demanded a review of these rates, Jaitley said. The smaller north-eastern states did not have the infrastructure and felt they were being “eliminated in the competitive market through the differential rates”, he added.

A Group of Ministers headed by Maharshtra Minister of Finance & Planning Sudhir Mungantiwar recommended that there needs to be a single rate, which may be 18 or 28 percent.

The issue was discussed today, and members from Kerala and Punjab, who could not attend the meeting today wish to reconvene this meeting at a later date, Jaitley said. There will be another meeting to discuss the issue and reach a possible consensus.

'Boost To Real Estate, Relief For Middle Class,' Says Jaitley

Finance Minister Arun Jaitley said that the GST council agreed to lower GST for affordable housing to 1 percent. This move will give a “boom” to the real estate sector, and make housing affordable for middle-class, neo-middle class and aspirational class.

‘Affordable housing’ in Bengaluru, Chennai, Delhi NCR, Hyderabad,Kolkata, Mumbai MMR region will have a carpet area up to 60 sq metres and will be priced up to Rs 45 lakh. In non-metro cities, criteria for affordable housing will be defined based on carpet area of up to 90 sq. metres and cost up to Rs 45 lakhs, he added. “We expanded the definition of affordable housing so that aspiring people can buy better houses.” This decision will give good boost to apartments under construction, lead to credit flow for real estate sector, he said.

The move is set to be implemented from April 1, 2019.

On other issues in real estate like the transfer of development rights, joint development rights, lease premiums, sale or transfer of Floor Space Index, Jaitley said there was a suggestion to exempt this from GST to give a boost to the sector. On that, the GST Council wants rules and guidelines for transition to be prepared. The fitment and law committee will draft those guidelines by March 10. Then the recommendations will be put in front of a subsequent GST Council meeting, Jaitley added.

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