The government is considering relaxing the GST rates, which may directly affect the real estate sector. If these changes are applied, the cost of building a house may be reduced, which can also benefit buyers. Currently, different GST rates (18% to 28%) are used on materials used in construction, which increases the cost of the project.
However, experts believe that reconciliation in rates and bringing back the input tax credit (ITC) can reduce the prices of homes by 2-4%. This step can prove to be beneficial, especially for the middle class, whose purchasing power is burdened under the constantly increasing costs.
Currently, the GST rates on real estate projects vary. 28% GST on cement and paint, while 18% GST on steel, tiles and sanitary ware. This uneven tax structure directly increases project costs and home prices. Experts say that bringing these rates together can reduce the cost of developers.
Will the prices of homes be low?
According to an EnaRock report, there is currently 1% GST at affordable housing, so there will be no major changes immediately. However, if the input tax credit (ITC) is reopened, the prices of homes may decrease by 2-4%. At the same time, in the middle class, if GST is reduced from 5% to 3%, the cost may decrease by 2-3%.
Abhishek Raj, founder and CEO of Jenika Ventures said that these changes can further increase the benefits of GST. He said, “In 2019, reduced residential GST from 12% (with ITC) to 5% without ITC has increased the trust of buyers in projects under construction.” He added, “But, without ITC, it is difficult for the middle class to buy a house for a long time.”
Pressure on cost increase and profits
Construction costs have increased significantly in recent years. Between 2019 and 2024, it has increased by about 40%, the fastest 27.3% increase in only three years. The cost of grade A projects in Tier-1 cities was ₹ 2,200 per sq ft in 2021, which will increase to ₹ 2,800 in 2024. In such a situation, tax exemption on major items like cement and steel may provide some relief.
TRG Group Managing Director Pawan Sharma said that it is a difficult task to maintain the prices of homes affordable. “Easy tax rates are helping people to buy more houses, especially affordable houses. But, removing input tax credit (ITC) increases the project budget, especially for goods like cement and steel. Finally, it burns to buyers.” Sharma further said that if the ITC is gradually applied again, the buyers will also benefit and it will be easy for the developers to work.
Concerns of luxury houses
The new simplified system of GST rates cannot give equal benefits to all categories. Luxury housing projects, which depend a lot on expensive goods, if such items are included in the proposed 40% slab, their costs may increase.
Sandeep Aggarwal, Chairman and Managing Director of AIL Developer welcomed the reform, but also gave a warning. Aggarwal said, “Bringing cement and steel within 18% will reduce the cost. If this reduces the tax burden by 10-20%, prices will improve in metros and tier-2 cities. But for luxury homes, the rate of 40% on fittings and finish can be harmful.” He further said that in markets like Northern Goa, where lifestyle homes are increasing, easy GST slab can bring transparency and attract formal investment.
Also read: Growing range of other houses in Goa
Elitepro Infra founder and director Viren Mehta cited similar risks in Gurugram and Delhi-NCR. “Luxury projects depend on good quality fittings and imported items. If these 40% come in the slab, the cost will increase a lot, which will either have to increase prices or suffer losses,” he said. However, Mehta believes that the luxury housing market of Delhi-NCR may continue to grow despite high input tax due to good demand.
Main basis of construction
Although it is easy and straightforward to follow a two-slab GST system, the lack of input tax credit (ITC) remains a major problem for developers. Re -implementing it may increase the profit of low rates, especially between moderate income families. However, for luxury project tits, 40% slab can already complicate pricing strategy in the competitive market.
