Despite the reduction of taxation on cement, the needle on property prices is unlikely to move, according to analysts, as the total impact of the change in cement prices will be too minor to make a substantial difference.
Cement costs will see a reduction in prices, with expectations of costs coming down by Rs 25-30 per bag. The cement industry is poised to enhance net realizations and margins over the medium to long term. But this benefit is unlikely to flow through to the final customer.
In conversation with Moneycontrol an Analyst, SMIDs, Hotels & Properties at Ambit Capital, explained the real estate math. “For any project, 20-30 percent of revenue pertains to land, while another third will pertain to construction costs. The remaining (generally, around one third) is the EBITDA margin generated from the project.
Of the construction costs, labour is the largest expense, amounting to roughly 40 percent. While steel takes up a large chunk, Khanna noted that the cement costs will be roughly under 10 percent of the total construction costs, translating to roughly 3-3.5 percent or the entire project cost.
On September 3, the 56th GST Council, chaired by Finance Minister Nirnala Sitharaman, approved the rationalisation of the Goods and Services Tax framework. Effective 22 September 2025, the existing four-tier GST system will be rationalized into a two-rate structure of five percent and 18 percent, along with a special 40 percent rate for sin and luxury goods.
In its investor presentation, Lodha Developers shared a breakdown of its construction-related costs. Steel, labour, and ready-mix concrete (of which cement accounts for one-seventh parts) are the developer’s largest expenses.
As a result, the savings from the rationalisation of GST will be too meagre to make a substantial difference. If construction costs account for roughly 30 percent of the total project, only six percent of the goods and commodities (cement, wiring, etc.) have seen a change in their tax structure.
Now, if GST falls from 28 percent to 18 percent on that portion, the effective benefit translates to roughly a 1 percent reduction in overall costs relative to sales, so the impact is quite limited.
“If there’s a one percent reduction in costs, if you’re selling a project at Rs 20,000 a square foot or Rs 25,000 a square foot, one percent is just Rs 200 or Rs 250 So to that extent, it’s unlikely that because of your GST rationalization, we’ll see meaningful cost reduction or selling price changes from a real estate standpoint,” he explained.
Another analyst who wished not to be named explained that the impact of the GST rationalisation on real estate will have an extremely minor impact on mortgages too. Assuming cement makes up 3.6 percent of the total cost of a project, he pencilled in a minor cut of Rs 35 per lakh on mortgage rates.
“Since the repo rate has been reduced by 1 percent, average mortgage rates have eased from about 9.15 percent to 8.6 percent. For a Rs 50 lakh loan with a 20-year tenure, this translates into savings of roughly Rs 35 per lakh,” he added.
Nevertheless, some analysts remain highly optimistic. “With Rs 12-15 per square foot in direct savings, builders now have the flexibility to pass on meaningful cost reductions to end consumers, making homeownership a realistic aspiration rather than a distant dream,” said President – Sales, Marketing & CRM, Sattva Group.
But with the rough per square foot cost of housing in metro cities ranging from Rs 15,000-Rs 22,000, the question remains if Rs 12-15 is enough to change minds.
