Bottom Line: The home buyers across the cities are not convinced as to how reducing the rate of GST from 12% with an input tax credit (ITC) to 5% without ITC on non affordable houses and revising down from 8% to 1% on affordable housing would make the houses affordable.
“Contrary to the hype around the GST rate cut, which actually is no cut, it seems the focus is not on the average home buyers like us. The bigger question that confronts an average middle class buyers like us is the affordability. It seems the government, developers and the media are collectively trying best to create an impression that GST rate cut has made the housing affordable to one and all. This is in contrast to the market realities otherwise,” says a dejected home buyer, Ashwani More in Mumbai.
This home buyers’ outburst over the media hype & industry reaction with reference to reduced GST is not an exception. Across the country the home buyers are questioning how the GST reduction has made the houses affordable in the cities where the jobless growth is fast turning into job loss de-growth. This is over and above the fact that the property prices are way beyond the affordability index.
A vast majority of the homebuyers that Track2Realtyspoke to are not convinced that the GST cut would make the property prices affordable. They are also questioning the overall benefits to the home buyers.
Facts also do not seem to suggest that the GST cut would make the property prices affordable:
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12% GST with ITC was introduced to substitute Service Tax (25% of the project cost) which was way higher than the existing Service Tax
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In many of the cases ITC benefits were not passed on to the buyers
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With ITC gone the developers would pass on the added input cost to the buyers
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With taxes paid on the inputs passed on to the buyers, it would marginally add the cost in below INR 5000 per sq feet houses where the profit margins of developers are lesser
Anil Nair, president of Nagpur metro region of CREDAI has on-record said that doing away with the credit will marginally increase the cost for builders. However, this will do away with the disputes between consumer and developers over passing on ITC. “It was difficult to calculate ITC because construction is a continuous process and even payment comes in stages.”
Nikhil Hawelia, Managing Director of Hawelia Group believes such move can only bring to the fence sitting buyer to the market. According to him, the sentiments play a role in making an indecisive buyer commit to property purchase. However, to say that GST reduction has eased the affordability of homes would be a far-fetched assumption.
“These are short-term measures to boost the sentiments as far as home buyers’ sentiments are concerned. It will definitely reduce the suspicion of the buyers as to whether the builder is actually passing on the ITC benefits to them. But I have my apprehension as to whether this will lead to surge in demand. After all, the taxes on inputs are now part of the package in home buying,” says Hawelia.
The home buyers, by and large, also agree that these are short-term measures to change the market sentiments. Some even call it election sentiment booster; something that the stakeholders of the sector are cheering about.
“A rate cut, whether symbolic or substantive, makes the headlines. Now whether you subscribe to that news item, and trust to what extent is your individual call. In collective consciousness an impression might gain ground that the home prices would be lesser. But when it comes to actual home buying any rational mind would do his/her own calculation. And it is here that the headlines are rejected for mis-information that GST cut has reduced the property prices,” says Navin Bhatnagar, a CA in Gurugram.
In a nutshell, when the job market is shaky and economy not performing as per the claims or expectations, the ground realities of the real estate business are juxtaposed to the optimism and hype around GST cut.
Many of the home buyers even believe that had the government been serious about the home prices and the added burden of GST, the efforts would have been to merge Stamp Duty with the GST. That would have definitely tamed the northwards affordability curve of housing across the major cities of India. But then absorbing revenue loss to the exchequer is far greater a challenge than managing the sentiments.
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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