GST: A decisive move
The article is authored by Shishir Baijal, chairman & MD, Knight Frank India.
The reduction in the GST rates for under-construction projects is the most decisive move by the GST council with a clear focus on demand stimulation. This move will give the necessary fillip to demand in the under-construction segment, which has been suffering from low sales levels for the last many quarters. The elimination of input credit tax benefit may hit profitability for the supply side; however, the potential demand generation as a result of this move will far outweigh any negative aspects leading to greater sales numbers and revenues. We estimate that the reduction in GST can potentially reduce the buyer’s payout by 6-7% on the overall purchase, depending on the category. The consequent accelerating sales will bring down the unsold inventory which has been afflicting the real estate sector.
The government is focused on their agenda of creating affordable homes, which is visible in the decision to reduce GST to a mere 1% in this category. Low outflows will push demand in the segment, which, in turn, will keep developers committed to build more affordable homes. The government is steadfastly moving towards achieving their target towards Housing for All 2022.
The reduction in GST rates, coupled with incentives proposed in the budget and the reduction in prime lending rates by the RBI, completes the sops for the residential real estate market. We feel that the government has taken all steps necessary to create demand and boost sales. One could not have expected anything more from the policy side that has addressed all major concerns of the beleaguered sector, both from the demand and the supply side.
The potential reduction in payouts for purchase of a new home in key cities of India will further improve the affordability quotient across all markets. Knight Frank’s affordability index study notes an improvement across all major cities with the majority being under the 4.5 mark. This will help improve the affordability index further in key markets.