Andhra Pradesh Grappling With Poor Real Estate Demand Owing To GST
Developers in Andhra Pradesh are grappling with the poor real estate demand that is showing no signs of picking up owing to the new tax GST (Goods & Services Tax), industry sources said on Saturday.
There has been no announcement of major new projects in the major cities in AP like Visakhapatnam, Vijayawada, Nellore or Tirupati, because of the GST. The GST rate is 12% on the cost of an apartment. Added to this is the 7% registration fee, says the president of the Andhra Pradesh wing of the Confederation of Real Estate Developers’ Association of India (CREDAI).
A potential buyer has to pay up to 20% as the tax on a new apartment. If the apartment costs Rs 50 lakh, then the tax liability would be Rs. 10 lakh. The high tax rates have dampened the real estate demand.
According to him, the residential real estate demand in AP was bedevilled by three major events in the past 18 months. The demonetization of high-value currency notes impacted sales. This was followed by the Real Estate Regulation Act of 2016 for which the AP government notified the rules in March 2017. GST came into force from 1 July 2017.
Elsewhere in the country, too, the GST has had a deleterious impact on the real-estate sector, says the chairman of the Mumbai-based Anarock Property Consultants, a real-estate advisory firm.
While the tax-on-tax has been eliminated with the advent of GST, the overall outgo from homebuyers’ pockets seems to have increased by as much as 8% across cities. This ultimately reduces the demand in real estate. Also, the higher tax rate on purchasing a home – an already staggering expense for most Indians – has kept many home buyers and investors off the market.
He says that in real-time the cost of raw materials under the GST regime underwent minor changes – cement, paints and plasters were taxed at 28%, and iron material at 18%. Building housing with high-quality materials has bumped up the overall cost, as most materials used in the construction process fall in the 28% tax category.
President of CREDAI-AP says that real-estate demand could get a boost if the state government rationalized the GST and registration fees. He said that the cost of apartments or row houses in gated communities in Vijayawada were expensive because of the “prohibitive cost of land”.
Land prices are also very expensive in the nicer neighbourhoods of Visakhapatnam. It is thus impossible for a builder to buy land and build apartments. The cost for such housing will obviously be high because potential buyers will have to pay a GST of 12% and a registration fee of 7%. Apartments have become unaffordable for many people in AP.
Asked about the prospects for affordable housing, which is being promoted by the central government as part of its policy to provide “housing for all by 2022”, the CREDAI-AP president said that affordable housing as a segment was unviable in AP.
Salaried employees are the key demographic for affordable housing, and it AP, only Vizag has a significant number of such customers. But again, the high cost of land in the port city makes affordable housing an unviable prospect, he said.
According to the chairman of Anarock, the affordable housing segment is yet to see any significant positive impact of GST.
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