Dubai: 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 momentum, 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 high-spending 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.”
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 in November last, transaction levels have started to improve, with western and southern cities being the clear gainers. (In northern India, there are still some fundamental issues to be resolved, not least being the excess supply that has been sloshing around in the pipeline for the last three years.)
So, India’s developers may not find it feasible to raise prices on their off-plan launches in the near-term. Even if some were to go on this route, the majority will only be too willing to hold the line and not upset their chances. They have their reasons.
“Though buyer sentiment is returning, it is still quite brittle,” said Puri. “Resultantly, most players will err on the side of caution to avoid pricing their projects out of the market. While GST will present a new layer of confusion for a while, at the end of the day this tax reform — along with the RERA (Real Estate Regulation Act, which came into effect May 1) policy reform — will serve to create a more transparent and wholesome real estate market.”
India’s property buyers — including, of course, their NRI counterparts — couldn’t ask for more.