GST and it’s impact on the Indian Real Estate

The Goods and Service Tax (GST) has had an unexpected impact on India’s Real Estate Sector. Realtors rely on sales of pre-launch and under construction properties for smooth cash flow.

This benefits both the parties as such properties are generally purchased at a significantly lesser price.

Earlier, service tax was way lesser. Now there is a 12% GST on under construction buildings, and buyers do not see the point of investing early even with no GST being imposed after completing the construction and getting the completion certificate.

Builder pays GST to the government, which reimburses the builder for his efforts. For this reason, there is no need to put the entire burden of GST on the customer, if it was not for the cost breakup.

In most real estate projects in the country, the land cost almost always exceeds 33% of the overall project. So the deduction to remains 1/3 rd of the cost for which the builder cannot get a refund; this gets passed to the buyer.

The realtor market fluctuations have assured purchasers to wait rather than closing the sale at the earliest for fear of price surges.

Goods Services Taxes are only applicable during the construction post which only stamp duty applies. So, why should a buyer bear a hefty tax? With more people opting to buy completed property, the burden is on builders to complete the work by digging into their reserves. Banks, NBFCs and HFCs are reluctant to lend as they too are becoming frugal due to a liquidity crisis.