June 26, 2018

With the first anniversary of the Goods and Services Tax (GST) on July 1, 2018, it is worthwhile to know how the real estate industry has taken the change in tax structure. Reduced GST for affordable housing has brought in relief for buyers searching for low-budget homes.

Here are the reactions from the real estate industry on the impact of GST on the real estate sector in the last one year.

Niranjan Hiranandani, President, (NAREDCO)

While implementation of GST has resulted in implementing 'one nation, one market, one tax' as also doing away with multiple state and local body level taxes in addition to central levies, there are pending positives that were to accrue from implementation of GST – which are still awaited.

GST is a 'game-changer for the Indian economy, including real estate'. It has brought more than 16 major taxes and levies into a single consolidated tax, in the avatar of a unified tax regime. This has effectively stopped the unwanted practice of double taxation, which was earlier adversely affecting real estate and other sectors, given the cascading effect which inflated prices for end users.

On completion of one year, real estate, while having gained from positive aspects, has some other aspects, be they about the manner in which implementation of the GST regime has taken place, or with regards some unresolved issues that have arisen as a result. The housing sector is still awaiting attention of policy makers, with the hope that these will be sorted out.

If during the second year of the GST regime, the above issues are resolved, the impact of GST on real estate would be far-reaching and positive in all terms.

Ashok Mohanani, Chairman Ekta World, Vice President NAREDCO (West)

Goods and Services Tax (GST) has replaced various indirect taxes such as SERVICE Tax, VAT, EXCISE, etc. except customs in India. The main reason behind this was to consolidate all indirect taxes into one, thus making it "ONE NATION, ONE TAX". Now that the service tax has been converted into GST, the benefits and outcome will vary from customer to customer. GST has brought a lot of transparency in the real estate sector and minimized unscrupulous transactions. Under the old tax laws, VAT and Service tax charged by different Contractors and excise duty, entry tax, octroi was paid on the procurements. GST law has increased the margin in the hands of contractor/developer by removing all the above-mentioned taxes.

Though the intent of the Govt was to make it tax neutral, however, as far as real Estate is concerned it wasn't tax neutral at all. Earlier when service tax was liveable, there was a 70% abetment for land cost, whereas in GST, land abatement is only one third of land value. This is a huge burden on the flat buyers.

Ekta World a believer in giving the best, transfers this benefit to its clients through multiple options depending on the project and its stage of construction, this benefit can be given adjusted to balance receivables or rebate at possession.

Mudassir Zaidi Executive Director- North, Knight Frank India

It's been a year since the Goods and Services Tax (GST) Act was implemented along with other Acts primarily the Real Estate (Regulation and Development) Act, 2016 (RERA) and the Insolvency and Bankruptcy Code, 2016 (IBC). These three Acts were rolled out together resulting in a profound impact in the last one year on the real estate sector which was already going through a significant slowdown since 2013. This further impacted the dynamics of the overall market.

If we specifically look at the impact of GST, one significant change was the dichotomy that was created between under-construction units which did not have Occupancy Certificates (OC) and ready units which had OC. Possessing an OC meant that there would be no GST charged on it. Therefore the issue was that new homebuyers preferred ready units that had OC in place so that they did not have to pay GST which was about 12 percent net (and not 18% as 6% was offset on the land cost). Hence 12% GST was an additional cost levied on the under construction properties which did not have an OC. This created a preference towards ready units where homebuyers did not want to pay additional GST and also because the market was already going through a slowdown due to credibility issues with various developers who were not able to deliver on time or were not able to complete the projects at all.

The other impact was it brought about a change in the manner in which homebuyers dealt with the developers. In GST, there is something called Input Tax Credit (ITC) that the developers give the homebuyers on new projects. However, projects which were incomplete where they could not set off earlier taxes like VAT and Service Tax etc. were not able to give ITC. Thus the majorly impacted projects were the ones that were incomplete and did not have an OC thereby resulting in some projects being given preference over others. These were the issues that compounded the entire problem.

Shishir Baijal, Chairman & Managing Director, Knight Frank India

The real estate industry has significant forward and backward linkages with other industries that are pre-dominantly in the informal sector. With the unified Goods & Services Tax (GST) regime, the stakeholders are now witnessing the benefits of integration in the supply chain and the consumer will be the ultimate beneficiary of this landmark reform. Business has benefited with a multitude of indirect taxes on construction inputs being streamlined into one while house buyers have benefited on account of uniformity brought about by GST being levied at a standard rate and on consistent basis of calculation across the country.

On ground, the impact of cost benefit varies across markets and product categories. Within the housing segment, house buyers particularly in the low to mid income housing segment have witnessed a cost reduction on account of both the benefits of input tax credit and lower tax rate of 8%. The premium housing market has witnessed a moderate pressure due to unabsorbed input tax credit. On the warehousing front, consumers have benefitted on account of consolidation of warehouse facilities into large and automated logistics parks. Considering that we have spent just a year in this new regime and the teething problems are being addressed on a regular basis, we are optimistic about the potential of this reform, which will eventually have a transformatory impact on the country’s property market.

Anshuman Magazine, Chairman, India and South East Asia, CBRE

The Goods and Service tax (GST) is unarguably a breakthrough reform that the country has seen since Independence, also changing the landscape of indirect taxation in India. We remain positive about this reform and encourage the government to continue ironing out specific issues and challenges in law keeping in mind the impact on various sectors.

With the roll-out of GST nearing a year since implementation, not only real estate but the construction and warehousing sectors have also seen a massive transformation. As a landmark economic reform, GST has created transparency which was always needed to encourage investments in the sector. The reform has significantly reduced construction costs for developers by negating issues related to multiple taxation. As the sector becomes more streamlined on the back of GST and other breakthrough reforms like RERA, the investor and consumer sentiment should further boost the ecosystem in future.

Farshid Cooper, Managing Director, Spenta Corporation

In its first year, GST has helped organise several unorganised players and in many cases revolutionised entire industries. In time to come, I sense that processes and transactions will be further streamlined. As for real estate there seems to be significant more clarity and comfort from the buyers. Further, revision of rates from 28% to 18% for several construction materials has helped vendors manage their cash flows more efficiently. We are pleased that the government is consciously bringing about change in the sector that is benefiting the developer as well as the buyer.

Amit Ruparel, Managing Director, Ruparel Realty

Implementation of GST has brought a radical change in the real estate sector and has helped to bring in a lot of transparency in the sector. Initially, the market witnessed a sluggish trend with implementation of GST, but now it is slowly moving towards recovery. The issue initially was that the homebuyers were expecting immediate price drop which was unattainable due to various factors and estimates, for which an over-night change cannot be expected. However, the market sentiments are more positive now with various other government initiatives to promote ‘Housing for All by 2022’. Homebuyers have regained their trust and there has been a marked increase in demand for affordable housing especially in Mumbai. From a realty developer’s point of view, compliance to file the returns thrice a month is a concern. This makes the filing of returns both tedious and difficult for businesses with less number of accounting professionals. We also look forward to a structured legal mechanism to deal with protection against defaulters.

Amit Wadhwani, Managing Director, Sai Estate Consultants

GST so far has been a relief for the home buyers and as earlier, buyers were liable to pay taxes depending on the construction status of the property, i.e., whether the property was under construction or complete, purchasing a property under construction, a buyer was subjected to the payment of VAT, service tax, stamp duty, and registration charges. Properties purchased after completion were exempt from VAT and service tax, and only stamp duty and registration charges were payable. Also, the state where the property was located was also a relevant consideration because VAT, stamp duty, and registration charges all varied from state to state.The best thing after GST is that a simple tax that applies to the overall purchase price. The 12% percent of the property value for all properties under construction that excludes stamp duty and registration charges.

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