(MENAFN - Khaleej Times) Providing a big boon to NRIs and domestic home buyers, India's GST Council on Sunday slashed tax rates on under-construction housing properties to five per cent without input tax credit, from the existing 12 per cent.
The move, eagerly awaited by home buyers and the embattled realty sector, will also see GST rates reduced on affordable housing to one per cent from the current eight per cent and expanded the scope of affordable housing to those costing up to Rs4.5 million and measuring 60 sq metre in metros and 90 sq metre in non-metro cities.
Finance Minister Arun Jaitley was quoted on Sunday as saying that the decision would certainly give boost to construction sector.
The new tax rates will come into effect from April 1, 2019. At present, the GST is levied at 12 per cent on payments made for under-construction properties or ready-to-move-in flats where completion certificate has not been issued at the time of sale.
Tax and realty experts said the GST cut, recommended by the Group of Ministers comprising the central and state Finance Ministers, would draw more NRIs to the real estate sector that is expected to touch $1 trillion by 2030.
Analysts said the move would give a much-needed fillip to the property sector, which has around 600,000 unsold under-construction houses in the top seven cities.
However, builders will not be able to claim input tax credit (ITC) under the new GST rates. GST is not levied on real estate properties for which completion certificate has been issued at the time of sale.
The GST cut would lead to reduction of home prices by as much as Rs300,000 for super built-up area of 1,000 sqft.
Analysts said for NRIs, it will be a major boon because they largely invest in under-construction properties as they buy it more for investment purpose and not largely for their end-use.
Anuj Puri, Chairman, Anarock Property Consultants, said the move gives the beleaguered realty sector the much-needed breathing room and will certainly help it maintain some forward momentum in 2019. "Another booster shot given by the government is changing the very definition of the budget-range of affordable housing.
Expanding the scope of affordable housing category pricing to up to Rs4.5 million will make more properties from the premium budget fall in to the affordable segment category, and thus benefit buyers in cities like MMR where property prices are exorbitant, said Puri.
"This will certainly cause sales of housing units within this segment to rise to a significant extent. Most players currently have considerable unsold stock within this segment," he said.
The GST cut, coupled with this critical change in definition, will induce more sales in homes falling in this budget range - a win-win for both builder and buyers.
"Cash-strapped builders have been hoping for all and any Government interventions which can help boost their sales volumes. This GST cut will provide such a boost, at least in the short-term as more fence-sitters who had been postponing their purchase decisions now have an additional incentive to take the plunge," said Puri.
An important factor is the timing of the move. "With the general elections closing in, builders have been worried on account of the lower sales which were invariably a by-product of the period preceding elections. Investors generally refrain from market plays in this time, and buyers also go into wait-and-watch mode as they await sops from a newly-elected government or stronger market sentiments resulting from continuity of the incumbent government. For this reason, builders also generally refrain from launching new projects in this period," said Puri.
Issac John Associate Business Editor of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.