Has the GST cut really helped affordable housing?
Unlike the common belief, the reduction in the Good and Services
Tax (GST) levied on affordable housing from 12 percent to eight
percent has failed on provide the much-needed respite to both the builder and
the buyer fraternity. What will trigger a boom in the affordable segment is a
tax-free status say experts.
Affordable housing is touted as the ”Sunrise segment” in the Indian residential real estate. The government has
undertaken various initiatives that make it advantageous for home seekers, and
offered multiple incentives helping developers create additional housing stock
in this segment.
From granting ‘infrastructure Status’ , subsidized loans,
and Credit Linked Subsidy Scheme (CLSS) under the Pradhan Mantri Awas Yojana (PMAY) for buyers to
increased Floor Space Index(FSI) and concessional loan rates for developers, the
government has introduced multiple measures to ensure demand-supply parity in
the affordable segment. However, the levy of a hefty Goods and Services Tax
(GST) continues to remain a significant challenge in the implementation of
low-cost housing, pan India.
Although, the central government has cut the GST rate from
12 percent to 8 percent for affordable projects, it does not augur well for the
growth of affordable projects in the country.
According to Niranjan
Hiranandani, CMD, Hiranandani communities and National President NAREDCO, “The GST cut failed to comply with
relators” expectation. It is believed that it will take a couple of years ‘ to significantly
impact the housing sector, particularly the affordable segment. Indisputably,
taxation benefits and concessional home loans would further strengthen the
low-cost Housing. Overall, a cut down in GST rates and incentives for
real estate developers would not only expedite construction activity but would
also reduce delays,”
“The cut has helped to bring down the cost of construction, but
it is not sufficient for the successful implementation of affordable housing
country –wide. Ideally, there should not
be any tax for affordable housing, including GST. Land cost and construction
variables already spike a unites price. Delay in approvals and development
phase affect the cost further,” avers Dinesh Jain, MD, Exotica Housing.
The back of the envelops calculation shows that what a
developers pays as GST and what he recovers from the buyer has a deficit of
RS.50 per Sq.ft. including all direct and indirect costs, a developer pays
Rs.312 per sq. as GST, and recovers only Rs260 per sq.ft , Which is a big loss,
a buyer has to spend Rs.31,000 more on a 600 sq. housing unit.
Moreover, the CLSS too, helps but up to a certain limit as taxes come
heavily on both developers and homebuyers. Holistically, it is relational to further
relax the tax rates to six percent as homebuyers are already paying an interest
on home loans coupled with Stamp Duty. In fact, the government should increase
the bracket of carpet area and interest subsidy for first-time home-buyers under
PMAY.
Adding criteria
for tax benefits can also be a positive step for affordable housing. Excepts
for the possession, the government should ensure mandatory benefits on the
interest paid on the home loan after 18 months or so, adds Jain.
All in all,
the above measures, if considered by the government would eliminate the
existing challenges in the construction sector, and smoothen the development process. Reduced taxes will
imply less cost of production and thereby, reduced cost of purchase of buyers,
creating a win –win scenario for all.
Thanks for sharing the informative post. This is very useful to buy a dream house in Chennai.
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