A peek into the Indian Housing Sector in FY 19-20

New Delhi, July 31, 2019: At the 33rd meeting that was held on 24th February 2019, the Goods and Service Tax (GST) Council announced the rationalization of GST rates on real estate. This cut is set to meet the industry expectation of 5%. What’s more, the GST on under construction affordable homes has been brought down from 8% to 1%. At the meeting, it was discussed that real estate builders can now opt for old GST rate and avail input tax credit benefit or the new reduced GST rate without any input tax.

Before understanding the impact of reduced GST on the housing sector, let’s quickly understand the current real estate landscape in the country.

One of the most crucial pillars of the Indian economy, the real estate sector amounts to 6-8% of India’s Gross Domestic Product (GDP). Due to the old GST rate, the real estate prices had spiked, and thus, there was a decline in sales.

To address this problem and accelerate the growth of this sector, the Government took the GST reduction call.

 Here’s how this GST reduction is going to impact the housing sector:

Housing for all:

The Government had proposed a housing scheme called the PradhanMantri Awas Yojana (PMAY) in October 2018. This scheme aims at providing affordable housing options to the urban poor population. The aim is to build 20 million homes by 31st March 2022. However, due to GST implementation, the property sales were stagnating and also becoming unaffordable for many. Thus, now with a seven percent cut in GST, the properties will become more affordable.

Scope of affordable houses:

Along with GST cut down, the GST council has also refined the definition of affordable housing carpet area and associated cost. Properties that cost up to Rs. 45 lakhs will now be considered as affordable housing. In metro cities, houses with a carpet area of 90 square meters and in non-metro cities, apartments with a carpet area of 60 square meters will be regarded as affordable homes. Data has shown that there are close to 5 lakh under construction homes that are yet to be sold in metro cities alone. Most of these costs are under Rs. 45 lakhs. With an amendment in the definition of affordable houses, more properties qualify for the Housing For All scheme. When the GST is as low as 1% on under construction affordable home, more nuclear families in metros will be lured into buying their own home.

More investments for under-construction property:

If as an investor, you buy a ready property, then you don’t have to pay any GST. But they must pay Stamp Duty and Registration Fee on the property. On the other hand, for an under construction property, you must pay GST. The cost of under construction property is far less than fully developed properties. Therefore, investors prefer to lay their monies on properties that are under construction.

With these GST reforms, owning your dream house has become simpler and most cost-effective. Therefore, now will be a good time to invest in real estate.

Keeping a note on the Union Budget 2019 the central government has touched upon various aspects and tried to strike a balance. However, the housing sector is positive too, thanks to some progressive steps being reiterated or put in action such as rental housing, sops for affordable homes, among others. Sitharaman’s insistence that growing urbanisation will be viewed as an opportunity and not as a liability, is indicated by the fact that various projects have been announced to lift the Tier II, Tier III cities, not to forget the rural areas as well. The Union Budget has increased deduction of interest paid on home loans by Rs 1.5 lacs to Rs 3.5 lacs from Rs 2 lacs, which is a welcome boost for the Real Estate Industry.

Corporate Comm India (CCI Newswire)