- GST Council has cut rate on under-construction, lower-priced projects
- Government says realty tax move will give boost to housing for all
- Property market relies heavily on borrowing for home-building, buying
A tax cut by the government to help the country’s troubled housing sector should boost home sales, but by itself will not be enough to put cash-short developers on more solid ground, say industry executives.
On Sunday, the GST Council said the sales-tax on under-construction residential houses in April will drop to 5 per cent from 12 per cent, while that on lower-priced projects classified as “affordable housing” will be cut to 1 per cent from 8 per cent.
The measure is one of a series by Prime Minister Narendra Modi’s government to try to stimulate consumption as his Bharatiya Janata Party faces nationwide elections by May.
Finance Minister Arun Jaitley said the real-estate tax change “will give a boost to housing for all”.
But industry executives are sceptical their positions – and those of many would-be buyers – will improve much, especially if there’s no easing of a funding crunch.
“The GST rate cut will provide respite to the overall real estate market, however, this will be a momentary infusion of notional positive sentiment,” said Om Ahuja, chief operating officer for residential business at developer K Raheja Corp.
Rising bad debts and real estate project failures have made banks cautious on lending to developers, leading to a slump in a property market that relies heavily on borrowing for both home-building and buying.
Two of PM Modi’s main economic reforms – demonetisation and the roll-out of the nationwide GST – have stung the real estate sector, a major contributor to economic growth and a large employer.
Mr Ahuja does expect sales of lower-cost units to rise after the tax changes.
“A lot of fence sitters will jump in and take the benefit and the affordable housing inventory would likely fly off the shelf over the next 12 months,” he added.