A Mixed bag for home buyers

Among the many pre-poll sweeteners, the NDA government has finally offered one for the beleaguered housing sector. The GST Council last Sunday cut the Goods and Services Tax on the sale of under-construction housing units from 12 per cent to 5 per cent; while for affordable units, GST was lowered from 8 per cent to 1 per cent. Parallelly, an ‘affordable’ unit has now been defined as those priced below `45 lakh, thereby bringing a larger swathe of homes in the lower tax bracket. Reducing GST has been a long standing demand of both consumers and industry, but the GST Council had repeatedly put it off earlier. However, as they say, it is better late than never!

The high GST of 12 per cent on under-construction houses compared to zero GST on completed units had killed the market for early bookings. Consumers were thus denied early-bird, cheaper options when projects are first launched; on the flip side, builders were denied easy access to funds, and had to seek out more expensive debt. And as a result, the industry had gone into a deep freeze with as many as 6 lakh units remaining unsold across the big metros. Hopefully, lower GST will now transform into lower prices, thereby generating consumer demand and faster offtake. 

But the good news comes with a rider. The earlier input tax credit (ITC), or the tax on tax which was earlier returned, is now not available to builders. Since GST has not been lowered for vital construction material like cement, which is taxed at the highest slab of 28 per cent, the construction cost of builders will in fact go up; and realtors say, there may be little scope for reducing home prices.

Some in the industry say that where land cost is less than 40 per cent of the total cost of the project, developers in fact might have to increase prices to maintain margins. The withdrawal of ITC is therefore a serious anomaly that should be corrected soon if the government wants to crank up demand by helping lower home prices.