Some developers are not passing on the full benefit of input tax credit under the GST to home buyers who have booked flats in under-construction projects, property consultant CBRE said on completion of one year of the new indirect tax regime.
The Goods and Services Tax (GST) came into effect from July 1 last year in the country.
The demand for ready-to-move-in flats has gone up as completed projects do not attract the GST, prompting developers especially in South India to launch flats after execution of projects, it said in a report ‘One year of the Landmark GST – Impact on the RE (Real Estate) Market’.
“GST has had a varying impact on the residential sector as the taxation is different for completed and under-construction properties. As completed projects do not attract GST, there is now a greater appetite amongst home buyers for ready-to-move-in residential units,” CBRE said.
The under-construction flats attract 12 per cent GST but the rate is 8 per cent for affordable housing.
Under the GST regime, the completed projects mean not only ready-to-move-in projects but also those that have been granted completion certificates.
For under construction projects, CBRE said developers are factoring in the full ITC (input tax credit) that they will receive on construction/development cost to arrive at the right selling price.
“But, not all developers are passing on the full benefit of the ITC to the consumers, resulting in a dampening of home buyer sentiment,” CBRE said.
To boost sales, the consultant said that such developers have been devising innovative payment schemes to attract customers such as subvention schemes that provide consumers an EMI holiday until grant of possession.
CBRE said that those projects launched before July 1, 2017 and in advance stage of construction are unlikely to gain significantly due to the ITC as most of the raw material would have been purchased before GST implementation.
However, under-construction projects that are still in initial stages of construction, would have the flexibility to adjust their price points according to the ITC under the GST regime.
Commenting on impact of one year of GST on Indian real estate, CBRE chairman, India and South East Asia, Anshuman Magazine, said: “The coming together of various policy reforms such as the implementation of GST, RERA and easing of FDI norms has significantly eased and streamlined the investment scenario of the country.”
While office and residential segments have remained the traditional investment drivers, he said alternative sectors such as retail and warehousing have also come to the forefront.
With the GST implementation, the warehousing sector has attracted interest from domestic as well as national players, resulting in the emergence of better quality, investment-worthy assets, Magazine said.
“Warehousing as a segment stands to gain significantly from the one-tax system. The overall leasing of warehousing space has increased from about 10 million sq. ft. in 2015 to about 17 million sq. ft. in 2017, and is expected to touch close to 20 million sq. ft. by the end of 2018,” the report said.
The average space take-up (on a pan India basis) in this sector has also increased from about 60,000-70,000 sq ft in the pre-GST era to 1,50,000-2,00,000 sq ft in the post GST era.