Builders to pass on tax benefits, home prices likely to see marginal decline
Real estate firms are gearing up to pass on tax benefits to homebuyers under the GST regime, which could lead to marginal changes in property prices. Depending on the stage of construction and location, home prices may either see a correction of up to 3% or inch up a bit from current levels, say property advisers and developers.
However, prices of ready-tomove-in apartments with completion certificates would remain steady as these properties are out of the GST ambit. Any price change in the segment will depend purely on demand and supply, say sector experts.
On July 1, Mumbai-based property developer Oberoi Realty Ltd launched a marketing campaign called “Zero GST Impact”, cashing in on the uncertainty over how the new tax rate may affect property prices. The company kept the earlier tax rate for the first 100 bookings in six of its under construction projects following the GST rollout.
Oberoi Realty MD Vikas Oberoi clarified that buying homes would not become more expensive after the application of GST as the company plans to pass on tax benefits to customers.
Under the new tax structure, buying under-construction properties will attract a net effective rate of 12% as against the earlier rate of 5.5% (including valueadded tax and service tax). However, due to the input credit benefits that most builders will get on the key raw materials they buy, the base price may go down.
“We have done our math and we believe that GST is not going to increase cost to customers. If we read the finer details, the input credit takes care of the GST that is required to be paid. If everyone plays fair, home prices will mostly be cost neutral or may go up just about 2-3% in (a) few projects,” Oberoi said.
Prices of ongoing projects may see a 1-3% correction post deduction of input credits, depending on location and stage of construction, experts said
“For new projects with 100% input credit passed to buyer and land cost being 50% of project cost, we expect property price to fall by around 1% in western and northern markets and around 3% in southern markets,” said a June 30 report by Edelweiss.
Om Ahuja, chief executive (residential) of Bengaluru-based Brigade Enterprises Ltd, said homebuyers could save about 3-4% post GST, depending on savings of builders on key components such as steel and cement.
The company is currently running a campaign where it has cut prices across 22 ongoing residential projects in Bengaluru, Chennai and Hyderabad.
“The impact on prices will differ for different projects and how much credit a builder can take or not take. Suppose if 90% construction has happened and the builders have already purchased the material, he may not get the credit on that,” said Abhishek Jain, partner, Ernst & Young, a consultancy.