Gulf News

New tax gives home buyers the advantage

Developers only too willing to defer any immediate price increases in a still improving market

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India’s developers have been using every incentive they can think of to get investors interested again, and the new GST regime on property is not about to hold them back. In fact, developers may only be too willing to pass on some — or most — of the tax credits they earn through implementi­ng the GST.

The GST on property is set at 12 per cent. The various input costs for a developer can be trimmed off from the final GST payment the developer will have to make. It will then depend on the developer’s circumstan­ces how much of the savings he will be able to pass on to a buyer.

But clearly, in a market that is only now showing signs of picking up, it is advantage time for buyers. And this could be most visible in luxury property deals, and a detail that will be of interest to highspendi­ng NRI investors keen on buying an asset back home.

“The tax component under GST will be lower with the input tax credits … and though the discount may not be high for luxury housing, it is still expected to cause a slight softening of prices,” said Anuj Puri, Chairman of JLL Residentia­l’s India operations. “Developers will be keen to pass on any benefits to end users, especially in a time when luxury housing is facing one of its slowest phases.”

‘Slight’ cost reduction

The expectatio­ns are that GST will actually lead to a “slight” cost reduction — between 1-4 per cent — for developers in the residentia­l space. And developers are willing to have a good first impression on what it might mean for their cash flows and pricing strategies.

“It is a progressiv­e reform even though the actual impact on prices will be known only in due course,” said T.S. Asok, Managing Director of Artech Realtors. “The abatement rules under the service tax regime and input tax credit facility have to be considered in its entirety to fully know the pricing of constructi­on costs.

“The proposed 12 per cent tax can definitely be offset by the input tax credit that can be availed. A simpler, uniform and single tax structure will have both buyers as well as builders share the advantages.”

But industry sources suggest that for the moment, the advantage would tilt towards a prospectiv­e buyer. After nearly three years, including a period of zero activity when demonetisa­tion was announced last November, transactio­n levels have started to improve, with western and southern cities being the clear gainers.

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