How GST will impact real estate sector going forward

While the impact of GST on various sectors and goods is now known, industry experts are still divided over how GST will impact real estate going ahead as clarity on the tax slabs for services is still awaited.

They say ‘Change is the only constant’ but in order to succeed, change is not only constant but it is also inevitable. After many reforming initiations like “Housing for all” and RERA, the next thing that Real Estate along with all other sector is looking forward to is the Goods and Services Tax. GST is set to get implemented on 1st July 2017. There are various goods and services which will have different rates prescribed by GST, which may impact their cost. A homebuyer henceforth will have to pay 12% GST to purchase a under construction house. If we look at the current scenario, real estate sector was heavily taxed, therefore 12% single tax structure is definitely a welcome move. We believe that existing multiple indirect taxes on the sector is higher and tax impact under GST would be neutral. While the impact of GST on various sectors and goods is now known, industry experts are still divided over how GST will impact real estate going ahead as clarity on the tax slabs for services is still awaited.

Together with RERA, GST will go a long way in ensuring transparency in the realty sector and growing buyer confidence. The existing channels include issues of multiple taxation, amounting to indirect taxes and no uniformity. GST coupled with Real Estate Regulatory Act that has come into effect on May 1, 2017, would ensure efficiency in the realty sector. GST will free homebuyers and investors from the hassle of paying several state taxes at different levels, therefore removing the double taxation impact. Therefore 12% tax rate under GST regime looks favorable to the industry.

If we talk about nitty-gritty’s of the GST for real estate sector, in some cases, even input credit will be more than the GST levied on the finished product, but a developer can claim a maximum credit to the extent of the GST he would be paying on the finished product. As per the provisions of GST, it can be expected that GST may lead to input cost deflation for construction industry as credit of taxes paid on various inputs used in the construction activities will be available which is not available in current tax regime.

GST is also likely to boost foreign investment and benefit the NRI community for investment in real estate because of a seamless all-inclusive channel available. The simplification of taxation is probably the most positive aspect of GST and it will promise well for foreign investments. It will also raise the confidence of the NRI market to invest in Indian real estate.

From the consumer point of view, the major advantage would be in terms of decrease in the overall tax burden on goods. Currently it is estimated about 25%-30%. GST will help in free transport of goods without stopping at the state borders for long hours for payments of state tax or entry tax from one state to another state. This will reduce in paperwork to a great extent as well.

Residential and Commercial Segment:
Impact of GST may vary according to the type of project and construction methods as only under construction flats are taxable under GST and input credits on sales of under construction flats are available to set off. At this stage, it is difficult to comment exactly on which type of projects will have more impact and which type of project will have more benefits. Therefore to analyse the type of project beneficial under new tax regime, it is advisable for developers and promoters to conduct GST impact analysis programme before implementing GST Systems.

As per the provisions of GST ITC Rules, input taxes paid on various elements used for the business (in our case construction activities) will available to offset against the tax liability i.e. GST collected from the buyers against the sale of under construction flats subject to certain restriction. It can be said that developer or promoter needs to pay only differential tax liability to the Government Body. Developer or Promoter has to collect taxes from customers from time to time and he is eligible to take input tax credit on goods as well as services used for construction activities. GST will help cut cash component in construction as products have to be sourced from registered vendors to get input tax credits.

Though under GST tax rate on under construction flats will increase to 12% from tax under current regime i.e. 5.5% (Service tax and vat rate under Maharashtra State) but input tax credit made available to promoters/ developers will reduce the impact of tax liability on cost of the projects. Also GST will subsume various taxes like vat, service tax, excise duty, entry tax, LBT (Octroi Duty in Mumbai) will also help to reduce administrative cost of developers. Under GST regime also Stamp Duty will be applicable on sale of flats and units.

Since the tax incidence on various monuments stones, aluminium, glass, ceramic, lamps and fittings are in the bracket of 18-28%, it can be expected that cost of luxury projects and commercial projects may rise if input set off not utilised properly. As the higher rate of tax will lead to increase in cost of construction activities.

Most of the construction material falling is under the 18% and 28% slab.

Affordable segment:
Currently under VAT system in Maharashtra, tax exemption is not available to affordable housing scheme. As per the announcement from Finance Ministry in media it has been expected that there will be no tax under GST for housing projects which comes under Affordable Housing scheme. Also for avoiding extra burden of tax liability on inputs and input services used for projects covered under Affordable Housing scheme should be allowed to be exempt. This will ensure cost inflation impact is not passed by promoters/developers to customers who purchase residential units under the Affordable Housing scheme.

(The author is chairman and managing director, Nahar Group. Views expressed here are personal)

RERA gives homebuyers better leverage in their dealings with builders

With the Real Estate (Regulation and Development) Act coming into effect from Monday, there is considerable hope that it will ring in much needed transparency in the real estate sector. Ever since the economic downturn deflated the real estate sector, leaving many homebuyers in the lurch, the need for a legislation that can address the concerns of hassled homebuyers was keenly felt. The grouse among homebuyers was that the consumer courts established under the Consumer Protection Act, which offers remedies for deficiency of service, were overburdened and did not offer timely redressal, or was tailored to meet the specific needs of the housing sector.

The Act provides a real estate regulatory authority in every state, under which developers must register their projects and place all details — including clearances, site plans, advertisements and customer brochures — with the regulator. This will aid buyers in making informed decisions before investing, and expose builders who deliver less than what was promised. The legislation also prescribes penalties and jail terms, a dispute resolution mechanism for amicable settlement, and mandates that builders deposit all inflows from a project into a separate bank account to prevent diversion. However, there is no guarantee that overstretched or ambitious builders will not withdraw amounts for other purposes as there is no requirement for permission from the authority for withdrawal.

Despite the criticality of the provisions of the Act, only 13 states have notified rules that will make it operational. This is either a case of administrative sloth or a manifestation of the clout of the builder lobby. However, the state governments that have gone easy on notifying the rules are in danger of facing public reprobation. The middle class, which comprises most homebuyers, are not taking it lying down anymore and are hauling builders to courts and police stations for failing to meet their commitments. Some of the top builders have been arrested or hauled to court because of complaints lodged by irate buyers.

Builders shouldn’t be wary of this law. It is an opportunity to infuse professionalism in the sector and revive the industry, which has been in terminal decline from 2012. Builders have only themselves to blame for spreading their resources thin among multiple unfinished projects and the huge unsold inventory. Banks also contributed to the speculation by liberal access to credit. States must ensure that the regulatory authority can function smoothly and does not turn out to be a disappointment for consumers.

Source :- DNA

How will GST Impact the Indian Real Estate Sector?

The Cabinet decision is expected to generate Rs 300 crore in additional revenues for the state exchequer Gifting immovable property to blood relatives like children, husband, wife, sister or brother may get costlier with the state government deciding to levy a higher stamp duty on such gift deed transactions.


The Maharashtra Cabinet on Tuesday decided to levy stamp duty of 3 per cent at the prevailing ready reckoner (RR) rate on the registration of such documents which will be a significant rise from the nominal Rs 200 which was charged earlier.

Developers expect housing demand to recover with the implementation of the real estate law from May 1 as it will protect buyers from unscrupulous players, while prices will remain stable due to huge unsold inventory.

The two apex bodies of real estate developers-CREDAI and NAREDCO-feel that the implementation of this law will bring a paradigm change in the way Indian real estate sector functions, but see some “teething” problems initially.

The two bodies wanted the government to exclude ongoing projects from the ambit of the Real Estate (Regulation and Development) Act, 2016, passed last year by Parliament, but their suggestions were not included in the law.

“It’s a paradigm change in the real estate sector. It will protect buyers who have purchased flats in the past. The regulator under the RERA should find ways to help complete ongoing projects and provide relief to home buyers,” NAREDCO Chairman Rajeev Talwar said.

CREDAI President Jaxay Shah said the RERA will increase transparency in the sector and boost the confidence of both domestic and foreign investors. He, however, said there will be some “teething problems”, initially in the implementation of this law. Asked about the impact on prices, Shah said: “Supply will dip during this year but demand will improve as buyers will have increased confidence to invest in the property market.”

Prices will remain stable now but rates could rise by 10 per cent in next six months, he added. JLL Residential (JLLR) Chairman Anuj Puri said this law literally holds the key to the future growth of the Indian real estate as it has the potential bring transparency to clean up the sector. He said the time has finally come for homebuyers in India to breathe free and invest confidently.

“No more will unscrupulous smaller builders or even larger organised developers are able to take buyers for a ride,” he added. Asked about the impact of this new law on supply-demand, Puri said the supply is expected to decline in the interim period, but demand will rise as home buyers and investors confidence will improve with the implementation of this law.

“Prices will remain stable till unsold inventories are sold. This will take at least 9 months and thereafter we can see some upward movement,” he added. JLL India CEO and Country Head Ramesh Nair said the RERA definitely needs to be implemented in letter and spirit by all the states as this law aims to clear opacity in the Indian real estate sector and make it more buyer-friendly.

Anshuman Magazine, Chairman, India and South East Asia, CBRE, said, “In the long run, we feel that the establishment of a regulator will prove beneficial for the sector. With investor confidence returning to the sector, resulting in greater institutional capital inflows in the long term, we can expect to see the segment in revival mode.”

However, he said the developers may be cautious initially about announcing new launches till they get a proper understanding of RERA’s various components. According to Tata Housing’s Head of Marketing Services, Rajeeb Dash, unorganised or small developers will find it difficult to manage their businesses after the implementation of RERA.

“With RERA coming in buyers or investors will look at branded projects as they do not want to get stuck. Smaller players or the unorganised market will find it difficult to survive in such a situation. “We will witness a lot of mergers and acquisitions. Though wiping out of the small players will take time, maybe 2-3 years, but there will be an impact,” he said.

Dash further said many developers will tie-up with branded players as partners. Sunil Sharma, VP-CRM & Marketing, Mahindra Lifespaces, said, “With demonetisation behind us, the Indian real estate sector is showing early signs of revival. The implementation of the Real Estate Act 2016 can accelerate growth in end-user and investor interest, leading to an overall gain in momentum for the sector.”

The RERA is a progressive law, which will make project registrations mandatory, with a clear timeline for completion, and specifications published, PropTiger.com Chief Strategy Officer Sunil Mishra said, adding that this legislation will benefit buyers, developers, and agents.

Source :- The Siasat Daily