Real estate developers are currently busy in complying with the new GST regime as far as their processes and systems are concerned. Several developers and real estate agents are expecting sluggish real estate sales volumes for some more time with customers still to get over confusion pertaining to their actual tax obligations on property buying transactions. Developers and brokers have been dealing with innumerable queries from prospective and existing homebuyers on how GST would impact the resale of any under-construction property by an investor. Customers are also questioning whether future adjustments in payment or reimbursements are possible from the input tax credit of their developers.
According to the Director at Karma Realtors, Prakkash G Rohiira, customers will still be discovering and learning more about the new taxation structure for quite some time now. They will be looking for more secure investment channels for themselves. He also added that the real estate industry was still recovering from the after effects of demonetization. Allowing home buyers to adopt a wait and watch policy will definitely impact overall industry performance according to Rohiira.
Developers perceive that homebuyers will now prefer to zero in on ready-to-move properties only since this category has been kept out of the GST’s purview. However, these properties may be slightly costlier since developers of these homes will not receive any input tax credit. Developers may still get a few benefits for projects that are in their early stages but they will have to bear all the taxes on properties that are ready-to move-in since these are not within the purview of the GST according to the CMD at House of Hiranandani, Surendra Hiranandani. According to him, the intention is good, i.e. streamlining the taxation system and administration along with bringing more institutions within the overall taxation net. However, he added that GST was unlikely to have any major impact on prices of real estate. Hiranandani also feels that the present 18% on under-construction projects may marginally lower prices in the affordable housing category on account of input tax credits but a similar impact is unlikely to happen in case of premium or mid-range properties.
The Government had notified the GST for real estate construction last week at 18% as compared to the 12% which was announced previously. However, the Government has also enabled deduction of land value equating to 1/3rd of the total amount that is charged by the real estate developer, keeping final tax rates unchanged at 12%. According to experts, this revised rate will lead to higher tax neutrality since GST obligations will remain similar for homebuyers. Greater clarity is also expected once the GST is fully implemented and the Indian Government offers more information on the land cost for service tax calculations on projects which are under construction. In case of premium projects where land costs take up approximately half of total expenditure in major cities like Mumbai, the prices of apartments are expected to go up majorly.
