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The Central government has handed out a big pre-election bonanza to property developers and buyers, by reducing GST on under-construction houses, from 12 per cent to 5 per cent. GST on affordable housing, meanwhile, will only be 3 per cent.
Interim finance minister Piyush Goyal held a meeting with CREDAI, the umbrella body of developers, whereby he had promised that in the upcoming GST council meeting, tax on under-construction houses and affordable housing would be reduced significantly. Even in his Budget speech, Goyal had said his government will reduce GST on under-construction houses. He also said that a committee would study the impact of GST, and possible solutions.
Rajesh Prajapati, chairman of media and PR for CREDAI, who was part of Friday’s meeting, confirmed the development. Prajapati said that people are staying away from investing in property due to heavy taxes. “At 12 per cent GST, if the cost of a house is Rs 1 crore, buyers have to pay Rs 12 lakh as tax plus 6 per cent stamp duty and registration, which means s/he ends up paying Rs 1.20 crore. This is a huge amount, and it meant under-construction real estate market was facing troubled times. We demanded a reduction in GST, and we hope the government takes this positive step that will revive the stagnant under-construction market,” Prajapati said.
CREDAI has also called a developers’ national meeting in Delhi on February 13 and 14, which may be addressed by Prime Minister Narendra Modi. Sources said that the Centre may make the announcement of slashing GST rates before this meeting.
“BJP wants to take credit for this and work it to its benefit electorally. So everything has been done as per the election’s schedule. But we don’t have anything to do with the politics. We are just concerned about getting our relief,” said another developer, requesting anonymity.
Prajapati, who is also the president of CREDAI MCHI, Raigad region, said Goyal had admitted there is a huge gap between levelling GST on a finished product and an under-construction project. “We are really hoping for some positive developments ahead of the elections,” he said.
Another developer who attended the meeting, however, said that if tax on under-construction houses is reduced, the government may level GST on ready possession flats as well. “The finance minister didn’t clearly spell out how the GST will be implemented on ready possession flats. Also, we currently get rebate as an input credit cost, which may not be the case once the tax is reduced to 5 per cent. The move of reducing GST may also drill a hole in our already tattered pockets,” a senior developer from South Mumbai said.
Pankaj Kapoor, MD at Laises Foras, a Mumbai-based real estate research firm, said that there are 14 lakh unsold under-construction houses across the India, of which 2.60 lakh are in the Mumbai metropolitan region. Reducing GST will not only motivate buyers to buy under-construction houses, it would also encourage developers to dispose off their pending inventory. “The 12 per cent GST was a big hurdle why people stayed away from buying properties, particularly in Mumbai and its peripheral areas. An average 2 BHK house in Mumbai costs Rs 2 crore. And nobody wants to shell out Rs 24 lakh on taxes and registration,” Kapoor said.