‘India tax cut a short-term respite’
MUMBAI: A tax cut by India to help the 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, a government body said the sales tax on under-construction residential houses in April will drop to five per cent from 12 per cent, while that on lower-priced projects classified as “affordable housing” would be cut to one per cent from eight per cent.
The measure is one of a series by Prime Minister Narendra Modi’s government to try to boost consumption as he and his party face elections by May.
Finance Minister Arun Jaitley said the tax change “will give a boost to housing for all”.
But industry executives are sceptical their positions — and those of many wouldbe buyers — will improve much, especially if there’s no easing of a funding crunch.
“The GST (Goods and Services Tax) 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 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 homebuilding and buying.
Two of Modi’s main economic reforms — demonetisation and the rollout of the nationwide GST — have stung the real estate sector, a major contributor to growth and a large employer.
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.