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RM Reports

GST and its potential impact on the festive launches

After a lull in the real estate sector, the industry reforms like RERA and then GST were expected to add flair. Couple it with the festive season, beginning from August, the unit sales volume is expected to go up. The-towards the end of 2017 real estate scenario- is somewhat expected to pull the property business out of the quiet, or put the buyers in the spot again.

Pooja Bhatia,

So, has it delivered till now? Has the festive noise by the property sellers influenced the buyers with structural reforms bestowed on them recently?

While RERA is a definite change in a way, it is interesting to find out how GST, the biggest tax reform of the present government and the festive period of the Indian housing sector complement each other. Our guess is, it has some positives and negatives together.

Taking a grim view first, the GST structure continues to be ambiguous and complexed for the customers. This thought of complexity is not only related to real estate but to the customer sentiment and mood in general. Suddenly, it is pinching tax for people and naturally, the same sentiment is extended to buying a property as well. The time is of economic uncertainty and curtailing expenses. On the other side is the changing buyer mood in exact context of real estate investment. People know that with GST and RERA, the situation is skewed towards them. So, the overall sentiment is positive. Add to it the festive calls by property developers, it couldn’t have been more favourable.

Imagine a scenario, when a buyer is being lured with a variety of offers and then, buyers are assured that property dealing is done in a fair and transparent way. Because there are GST and RERA which means a single tax and no messing up with ‘my money’ anymore.

The rather interesting part is developers offering a GST-free festive offer to help buyers make a choice. As we know, property developers have a piling inventory and thus, are eager to push selling units with an unprecedented strategy like huge cash discounts doled out or GST-free property offers. The real estate players, it may seem, have a reason to be positive.

Talking specifically about the No GST offer, there is a catch situation. Buyers and sellers together are akin to invest time and effort in ready-to-move apartments this festive season. Many sellers are offering No GST offer to buyers, however, there is no GST levied on buying a ready-to-move property. So, the buyers are being advised to read the fine-print before they enroll themselves on buying a house-with a GST allure.

This GST-free festive norm gets even more complicated to understand. Let us try to understand it first, and then find out if it matters during the festive time or not. It is the under-construction units on which the developers will be required to pay GST on the total cost of the project. Since developers are paying a tax input, is it expected to increase the final cost of owing the property? In other words, do the buyers need to pay ultimately for the GST input which the developer is paying during the construction?

Well, the ideal scenario should be no. Because, before GST, the developer was paying a higher tax input cost and now, with a single tax in form of GST, that tax cost has been lowered. In short, a part of the construction cost is less now. So ideally the benefit should be passed onto the buyer.

That may still explain the logic of GST-free festive offer period. Because, there is great speculation that the GST paid by the developer at the time of construction, will ultimately be passed onto the buyer. In addition to stamp duty, the buyer may have to bear the ‘GST-cost’ of buying a property.

This is a big switch from how GST is expected to impact the sector and what may be delivered.

There are clearly two schools of thought about GST. Many industry experts say that the cost of construction will come down and with input credits given to developers at a lower cost, the seller and buyer are in an optimum cost-saving situation. Another point of view is that when a buyer invests in a property with the Occupancy Certificate, s/he is not legally obliged to pay any additional taxes. It must be remembered that before GST there was service tax, which was to be paid by the buyer at the time of possession.

Since we don’t know yet how the developers will react on GST-attached house pricing post the festive period, it does seem that the buyers have a reason to rejoice over the GST-free investment during the 2017 festive time. Still, it is just one part of the real estate sector investment in the present time, as people continue to seek clarification of GST structure and its impact on their lives.

Pooja Bhatia is a property news enthusiast, who likes staying updated on business and corporate news, lifestyle at home, home interior elements, location insights and rest of the information, to make living better. She is also an avid traveller (a blogger on holidays) and an avid reader and a part of this real-time information, she converts into real estate enthusiasm.

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