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GST rates cut, affordable housing redefined

The GST rate cut will give the real estate industry a much-needed boost.

This image is for representational purposes only.
This image is for representational purposes only.

The article is authored by Anuj Puri, chairman – ANAROCK Property Consultants.

Anuj Puri. 

The slash in GST rates to 5% without ITC from the previous 12% with ITC for premium homes, and to 1% minus ITC for affordable homes from the earlier 8%, gives the beleaguered realty sector much-needed breathing room and will certainly help it maintain some forward momentum in 2019. Another booster shot given by the government is changing the very definition of the budget-range of affordable housing.

Extending the definition to housing priced within Rs 45 lakh is credible. It will make more properties from the premium budget fall in to the affordable segment category, and thus benefit buyers in cities like MMR where property prices are exorbitant.
Yet again, the affordable segment has got a major push today and buyers of this segment will benefit immensely. This will certainly cause sales of housing units within this segment to rise to a significant extent. Most players currently have considerable unsold stock within this segment.

ANAROCK data confirms that there are as many as 5.88 lakh under-construction homes lying unsold in the top seven cities. Of these, 34% are priced below Rs 40 lakh alone. With affordable housing now being defined within the Rs 45 lakh budget, more properties qualify for this sweet spot category. The GST cut, coupled with this critical change in definition, will induce more sales in homes falling in this budget range – a win-win for both builders and buyers.
Cash-strapped builders have been hoping for all and any government interventions which can help boost their sales volumes. This GST cut will provide such a boost, at least in the short-term as more fence-sitters who had been postponing their purchase decisions now have an additional incentive to take the plunge.
For the premium segment, this move may not be a game-changer leading to vastly improved housing sales, but we will see sales rise to an extent. More importantly, this move sets the stage for a stronger revival for the real estate sector in the future. The reduced rate, though nominal, will alleviate developers’ liquidity issues to some extent. Along with the other positives that the recent interim budget provided, it will create a more positive environment for all real estate stakeholders.
An important factor in this rate cut is its timing. With the general elections closing in, builders have been worried on account of the lower sales, which were invariably a by-product of the period preceding elections. Investors generally refrain from market plays in this time, and buyers also go into wait-and-watch mode as they await sops from a newly-elected government or stronger market sentiments resulting from continuity of the incumbent government. For this reason, builders also generally refrain from launching new projects in this period.
It would have been ideal if GST had been entirely removed for all residential property categories. This would have provided some serious acceleration for the market. That said, this GST cut is very welcome, and the industry now looks forward to proactive solution to the underlying issues that the sector faces. Until then, even small booster shots in sufficient numbers can help incite positive sentiment and developers can now look forward to some improvement in their balance sheets.

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May 2019
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