The rationalisation of tax rates on construction material by the GST Council is expected to provide the real estate sector some relief but since the rates applicable on property remain unchanged, there would be stability in taxation, Crisil Intelligence said in a study.
Since the rates applicable on affordable housing (1%), under-construction properties (5%) and completed properties (exempt) remain unchanged, the status quo offers stability for both developers and homebuyers, it said.
The reduction in GST rate for construction materials is also expected to improve developer margins and lower project costs as construction materials typically account for 50–60% of the overall construction cost for builders.
“The 10 percentage point reduction in GST on cement is estimated to result in a 3.0-3.5% savings on overall construction costs and the rate revision on marble, granite and related inputs an additional 0.5–1.0% (depending on the project segment and material mix),” Crisil said.
“Overall, the construction cost is estimated to decline by 3.5-4.5%. This will improve project viability, support developer margins, and—if partially passed on—enhance affordability of home-buyers,” it added.
With no change in property GST rates, buyer sentiment remains unaffected, avoiding confusion or deferment of purchase decisions, it said adding improved margin outlook may encourage developers to launch new projects, especially in affordable and mid-income segments.
Reduction in GST on marble, granite and stone will support cost efficiency in high-end housing projects, Crisil said.
“Overall the reforms are marginally positive for the housing sector. However, the impact is likely to vary across affordable, mid-income and premium housing categories. Also, whether developers will pass on the benefits to customers will bear watching,” it emphasized.
