GST to Help Developers Shift Focus to Affordable Housing

The Goods and Services Tax (GST) is likely to make real estate developers shift focus to high volume, low to medium housing. Affordable housing costs could fall and those for the premium segment could rise, says a white paper titled Decoding GST and Real Estate Regulation by RICS, , a self-regulatory professional body for qualifications and standards in land, property, construction and associated environment issues.

The Real Estate (Regulation and Development) Act (RERA), 2016, will help ensure that real estate projects get completed on time. Provisions in the Act such as imposition of similar penal interest for developers and homebuyers will incentivize timely delivery of projects, it says.

“GST will lower real estate costs for the affordable segment of housing while increasing costs for the premium segment. A large part of the real estate market – almost 70% is skewed towards middle to high income segment of housing. We might see developers (especially smaller ones) shift focus to low income housing to gain from GST,” says Sachin Sandhir, global managing director – Emerging Business, RICS.

The white paper explores the nuances of the impact of GST and RERA on the real estate sector and examines specifically if there are any issues that could cause ambiguities or discrepancies in the sector.

“An attempt has been made in the real estate act to balance the requirements of all the key stakeholders, namely consumers, developers as well as real estate agents. We expect much more professionalism… as we start progressing on the implementation of this act and ultimately, we may have a situation where projects are delivered as per the timelines. Two of the states, Gujarat and UP, also notified the rules before October 31 and many states are also in the advanced stage. We expect that the implementation of the act will start at the field level at the earliest and the benefits will start accruing to the sector, consumers, developers, everyone,” says Rajiv Ranjan, joint secretary, (housing), ministry of housing and urban alleviation, government of India while releasing the white paper.

The white paper concludes that GST by itself cannot be treated as a panacea for real estate market woes – both for the buyer as well as for the seller or developer. Broader policies in land and housing/ commercial stock management, ensuring availability of appropriate financing resources etc will be just as important to leverage the opportunity posed by GST, it says.

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