GST Hurt Real Estate As Buyers Postponing Purchases Of Under Construction Houses

Since ready-to-move-in properties do not attract the 12 per cent GST, buyers are delaying decision till a building receives the occupancy certificate (OC).

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GST Hurt Real Estate As Buyers Postponing Purchases Of Under Construction Houses

Goods and Services Tax (GST) has hurt the real estate sector as buyers are postponing purchases of under-construction houses, leading to liquidity crunch for developers.

Developers are forced to scout for fresh capital to complete projects. The luxury housing segment has been the worst-affected since the implementation of the GST on July 1 last year.

Since ready-to-move-in properties do not attract the 12 per cent GST, buyers are delaying the decision for under-construction houses till a building receives the occupancy certificate (OC).

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Real estate market across the country is under pressure due to liquidity issues because the capital requirement has gone up. Developers today need more liquidity than before for completing projects, co-founder and MD of Hiranandani Group and President of NAREDCO told.

MD at real estate consultancy Liases Foras, said the luxury segment, where prices are higher and land forms a substantial cost component, has taken the biggest hit from GST. The cost of land is not eligible for input credit under the GST because it is an immovable asset.

Already there was low demand with low investor activity, and the 12 per cent GST has dissipated the leftover energy. In luxury projects, the land proportion is much higher but the construction cost is lower and so the input credit is very low, which does not help developers, he said.

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Moreover, to expect buyers to pay Rs 48 lakh GST on a property worth Rs 4 crore is unrealistic. So, many players are developing projects themselves and offering on the market to avoid attracting GST. Overall, it is a loss of margins and capital to the developer.

Chairman, Anarock Property Consultants, said although it was anticipated that the GST would reduce property prices pan-India, we have in fact not seen a significant impact on the ground. If the stamp duty and registration fees were subsumed under the GST regime, we would definitely see the property prices come down.

While the tax-on-tax has been eliminated with the GST, the overall outgo for buyers seems to have increased as even after passing on of input tax credit they may have to pay 3-4 per cent more than the earlier service tax plus VAT.

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Moreover, in the case of projects which were nearing completion close to the GST start date, there has been no significant benefit that the developer could pass on to customers.

The two segments of the real estate sector that have gained from GST are affordable housing and warehousing. In the case of warehousing, the GST is playing a pivotal role in boosting the hub-and-spoke model as well as the growth of Multi-Modal Logistics Parks.

Source Link- https://www.thehindubusinessline.com/

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