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Impact of GST on Real Estate Sector & Other Policy Changes

Impact of GST Bill on Real Estate

When the Kobe earthquake hit Japan, one of the major news stories to circulate, was the amazing engineering that went into the construction of infrastructure and buildings. While, the earthquake caused massive devastation, many buildings were left intact, due to the strict and stringent measures enforced during constructions, which aided in the saving of lives. Investing in real estate is not only a sound investment, but it also allows for transfer of the property from one generation to the next. A strong foundation and construction of the structure will ensure the property stays standing for decades together. Strict adherence to policies and measures in the real estate sector can ensure quality structures and improve the confidence of the people investing in properties. The recent reforms and its impact on the real estate sector in India is aiming to do just that.

Impact of GST on Real Estate Sector

Impact of GST on Real Estate Sector

The real estate sector is expected to become more transparent, since the introduction and implementation of GST. GST will absorb many of the indirect taxes developers had to pay under the previous regime. Logistics will also improve under GST and the availability of input credits will reduce project costs. These reductions for the developers will positively impact buyers, as costs will decrease. While there is still some confusion about the GST charges for under construction flats, the GST council is working towards resolving these confusions and ensuring that input credits are being passed to the end customer through the anti-profiteering clause in GST law.

Impact of Demonetisation on Real Estate

While demonetisation had opinions flying around about its impact on the real estate by reducing housing prices, the reality was different. From this it can be inferred that most of the buyers in the real estate segment have been end users, home owners, not investment seekers. While, the premium property segment, above Rs 50 lakhs, did see a reduction, the brunt of demonetisation was not drastic. The black money investors, who were buying real estate to convert their black currency into legal currency, found it difficult as demonetisation had reduced the inflow of black money being flooded into the market. The real estate sector, has yet to still rise to the level industry players are expecting, as the Budget 2018 did not give the boost they were expecting.

[ Read: Advantages and Disadvantages of Demonetisation ]

Impact of Real Estate Regulatory Authority (RERA)

RERA was introduced in 2013 with the purpose of protecting home buyers and ensuring construction companies complete and deliver projects on time. Although, each state will have to decide its own method of implementation, under RERA builders will have to register themselves and projects which have more than eight apartments. Consumers will also be charged by carpet area instead of super built up area. Moreover, buyers can access publications about project details, development plan, financial details etc. through the RERA website. Since RERA, there has been an 8% drop in new projects, as small-time developers have been removed from the market.

The amendment to RERA further prevented builders from preselling or selling units without first getting clearance from all channels, such as financing. This has resulted in several small and mid-size developers trying to raise the capital from more expensive sources such as, private lenders or non-banking financial companies(NBFC). RERA compliance has brought many projects to a halt and increased costs for builders. While, medium and large sized companies can opt to raise funds through NBFC’s, to complete or start their projects, small time developers have had to resort to costly private lenders, as they are not eligible for loans and have poor or nil credit rating.

Positive Impact of Policy Reform

Although, the real estate segment is struggling, the Pradhan Mantri Avas Yojana – Housing For All (PMAY-HFA) scheme will give a boost to the economy, while helping the citizens who need a hand, the most.  PMAY-HFA aims to put everyone in a house by 2022 and the segment saw a 27% growth last year. Furthermore, PMAY-HFA schemes will also give the employment sector a boost.
Additionally, those whose annual income falls under Rs 12 lakh, can avail of the 4% subsidy on housing loans, for loans up to Rs. 9 lakh, under Credit Linked Subsidy Scheme for Middle Income Group (CLSS(MIG)). Individuals falling into the income level of up to Rs. 18 lakh, can also qualify for a 3% subsidy on housing loans up to Rs. 12 lakh.

Furthermore, developers can have easier access to institutional credits through the infrastructure status. The infrastructure status will reduce the borrowing costs, thereby enabling the government’s goals of affordable housing by 2022.

Another positive introduction was the amendment to the Benami Act, which prevents the hoarders of black money from registering their properties and assets under other people’s names, such as poorer family members/servants etc. The benami owners of the property and other assets would have to provide source of income for the said acquisition and if the person was unable to name the source of income (even if gifted), then the property/asset would be sealed. An added prevention method of linking Aadhaar card further demotivates benami properties from being registered. These steps will decrease the amount of cash being pumped into the real estate segment.

As the government tries to organize the country by creating transparency in every segment, the real estate sector has benefited from these policy reforms, as it has given buyers the confidence to invest their money safely in properties, which will last for generations.

 

Annalakshmi Ekambaram
Annalakshmi Ekambaram
Annalakshmi is a content writer at H&R Block India. She enjoys writing about Income Taxes in a simplified manner so that everybody can easily understand it.

2 Comments

  1. Nisha Patel says:

    The benefits of Goods and Services Tax (GST) are quite big. Providing input tax credit will bring the developer’s cost down, which is a positive outcome of GST on under-construction property. Also, the reduction in number of taxes will benefit the home buyers.

  2. nagesh lingayat says:

    Informative article. Thanks for sharing it.

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