GST might lead to rise in the sale of ready-to-move-in properties

The goods and services tax (GST) is set to impact all the sectors of the Indian economy, and real estate is no exception.

As property developers prepare for the new tax regime, there is little hope amongst builders and brokers that real estate sales would flourish for some time, given that consumers are busy getting clarity about the new tax obligation on their transactions.

Consumers are enquiring about how GST would treat the resale of an under-construction apartment, and if developers' input tax credit might be able to adjust reimbursements or future payments.

"Customers will be in a discovery mode for a while, trying to analyse and follow a secure investment pattern for themselves. And we are talking about an industry which is just about to recover from the side effects of demonetization," Prakkash G Rohiira, director, Karma Realtors, told ET. "Allowing homebuyers to be induced into a wait-and-watch mode would alter the performance of the industry."

As per industry insiders, homebuyers would now prefer ready-to-move in properties since that segment is out of the GST ambit. However, they might cost a bit more now, since they won't get any benefit of input tax credit.

The GST council has put construction of real estate under tax bracket of 18% as against the 12% that it has earlier announced. However, with this increased rate, deduction of land value equivalent to one-third of total amount charged by the developer has been allowed, which would lead to an effective tax rate of 12%.