The purchase of homes appears feasible with the Government deciding to curtail the existing rates of GST (Goods and Services Tax) attracted by the under-construction properties. The 8% on affordable housing will now become 1% while the normal category witnesses a change to 5 % from 12 %. The affordable homes get more affordable with a revision in its size and the prices extending to 45 lakh rupees.
At the same time, ITC (Input Tax Credit) benefit of the builders has been removed by the Government. Previously, the developers were required to pass this benefit onto the buyers. The base prices are likely to increase due to the eradication of Input Tax Credit. The builder’s cost will increase in the absence of ITC benefit, which they will try to compensate partially by slightly increasing the sale prices. There is a possibility for the prices to rise in the projects belonging to the luxury and mid-range categories.
But the competition among developers ensued from the standing stock might push them to compromise on their reduced margins without elevating the prices. Besides, the low demand for under-construction units is another factor for maintaining the present prices in order to facilitate the sale of these properties.
Realty experts feel that this is the appropriate time for end-users to purchase homes when the prices are quite stable and are not expected to increase due to the reasons discussed above. The slashing of GST rates will, in turn, reduce the payouts. Not to ignore the effects of RERA with it becoming active across India, which will be favouring the buyers. The developers’ interest also gets protected by the concessions announced in the recent Interim Budget.
The prices across all the micro-markets in India have also been rectified. Despite the prevailing optimistic situation, investors should enter the realty market if they are patient enough to wait for 5 to 7 years for handsome returns on investments.
In order to reap the benefits of the GST rate and make the most of the present buyer-friendly market, the consumers are requested to wait till April 1 before they seal their deals because that is when the new GST rates will come into effect. To avoid any risk, the buyer must gather proper knowledge on prices both before and after GST rate reduction and also make sure to get it in writing.
The GST Council’s decision to dwindle the Goods and Service Tax rates on under-construction projects has followed a prolonged delay. The reduction is significant with the 12% levied on the normal category of residential projects have come down to 5 %. Similarly, 8% in the affordable segment has declined by 7% and equals to 1%. Added to this, the size of affordable homes have been improved while the price remains within 45 lakh rupees.
Let’s find out how these decisions will influence the Real Estate organizations, as analyzed by realty experts. Firstly, the difference between the price of finished and under-construction projects will slacken. As a result, the demand for under-construction units will be restored. With a GST gap of just 1 % between the ready possession and unfinished projects, even the builders focussing on LIG (Lower Income Groups) will receive takers.
Coupled with the GST rate reduction, the size of affordable housing units have also been revised. Thus, the developers can now include units from their unsold inventory that befits the size criterion and a price of less than 45 lakh rupees. The end-users will be showing more interest in under-construction projects. As the ticket sizes below 45 lakh rupees account for 40 to 45 % of the present supply across the 6 cities and the 1% GST becoming effective this April, the liquidity of developers is likely to improve with a boost in demand.
The 3rd quarter of 2018-19 witnessed lower housing sales due to purchases being deferred by home buyers so far expecting the GST rates to dwindle. The difference of 7 % GST between the previous and new rates amounts to 7 lakh rupees that the buyer will be saving on a home worth 1 crore rupees. This makes the wait till April 1 worthwhile so there is no rush of buyers at the moment to purchase under-construction units.
The buyers are advised to postpone their purchasing decisions for a few months as the pricing strategy is being reworked by the developers, which might impact the sales in the category of under-construction projects during the 4th quarter.
Removal of Input Tax Credit
The pricing issues do not eradicate with the recent cut in GST that is likely to boost the sentiment of buyers. The recent reduction of rates excludes ITC (Input Tax Credit) benefits that were previously allowed on construction inputs such as steel, cement. Therefore, the final price won’t be considerably influenced with only a net gain 4 to 5 % of the cost, as anticipated.
The absence of ITC benefit will not impact the margins of those developers who do not pass it to the buyers but the margins of those builders passing the benefit will be affected. The latter will have to enhance the price by 2 to 4 % so as to recover their Input Tax Credit loss for maintaining their margins but that appears tough in the given market conditions.
Here is how the calculation of the final property price based on the given assumptions :
At present, a house worth 1 crore rupees costs 1.12 crore rupees after attracting a 12 % GST, which is the additional 12 lakh rupees.
April 1 onwards, the final price of a 1 crore house might increase to 1.03 crore since the ITC benefit on the payment of GST for raw materials would be 2 to 3 %. An addition of 5.15 lakh rupees due to the new 5 % GST will make a total of 1.08 crores.
Thus, the buyer saves 4 % that means 4 lakh rupees on his purchase as per the GST rate cut.
The smaller Metro cities such as Bengaluru have a greater number of homes priced below 45 lakh rupees in comparison to that in the big Metros of the country. In the smaller Metros where the cost of land is less than 1/3 rd of or same as that of the project cost, prices have to be increased by the developer for maintaining their margins. But locations like Mumbai with the substantially high land cost varying between 50 to 60 % of the project cost, will benefit from this GST cut without ITC.
So, cheer up and make the most of the coming times by purchasing your dream home from the various apartments available for sale in Kolkata. Visit transventor.com to proceed step by step from the selection to the purchase of a property through our useful assistance.