The Indian GST regime has undergone a major revamp recently; referred to as GST 2.0. The tax structure has seen the simplification of slabs and a downward revision of rates applicable on various important building materials. The impact of this latest update was immediately visible in the construction and housing sector, as several items witnessed a significant fall in their tax rates. For instance, cement was brought down from 28% to 18% and other items like marble, granite, tiles, and bricks also witnessed a considerable reduction in their GST, with some of these items witnessing their rates falling to as low as 5%. These changes are expected to have a positive impact on the real estate industry. Affordable housing is continuing to be a priority and the under-construction affordable housing properties continue to witness a tax rate of 1% while non-affordable residential projects are taxed at 5% (without Input Tax Credit). The changes brought about are expected to lead to a more simplified indirect tax regime and reduced cost of construction; making real estate more accessible and affordable.
Noida, being among the top most real estate growth centers in the National Capital Region, is highly susceptible to the changes in the indirect tax regime and the changes in the affordability front, in-turn impacting both the demand and supply side. Noida has witnessed consistent growth in its real estate development due to its excellent accessibility through the expressways and metro, as well as its developed infrastructure and amenities. Noida is one of the favorite investment destinations across the National Capital Region as it houses a comprehensive suite of projects, ranging from affordable housing to premium and luxury projects. Any change in the indirect tax or affordability scenario would have a major impact on the real-estate development in Noida.
With the recent changes in the GST regime, the construction material costs have witnessed a dip. This is most beneficial to the developers as almost all the projects in Noida that are large in size have cement as one of the primary constituents of their construction cost. A fall in the tax rate by 10% on cement is directly going to translate to around 3-5% benefit on the overall construction cost, which is significant for large developers with huge projects. In similar fashion, the projects that make use of items like tiles, marble, granite, etc., which fall in the mid-segment and premium categories, would also benefit from the reduced tax rates on these items.
The update in the GST regime has been a welcome change for almost all developers operating in Noida. Developers who are procuring material in bulk for upcoming projects would find this update as a positive development. While the already ongoing projects might not directly benefit from this update, the future projects and phases would certainly make use of this opportunity to reduce the overall material cost and pass on some of these benefits to the home-buyers. This will have a positive impact on mid-income housing projects.
Home-buyers would also benefit from these changes. While the buyers of under-construction projects might witness some benefit if the developer chooses to pass on some of these benefits in terms of reduced prices. It would depend on the stage of construction of the property and the quantum of material cost borne by the buyer. The buyers of ready-to-move or resale properties will not directly benefit from the changes in GST as no tax is payable on such properties. However, the positive sentiment around the industry and the indirect tax regime changes would have a positive impact on the buyers of ready-to-move properties. The women buyers in Noida would also find more opportunities to purchase properties at an affordable price point as the state government has announced several benefits, in terms of stamp duty concessions, on properties valued up to one crore.
Impact on Noida Real Estate
Opportunities Challenges
Mid-income Housing: Mid-income housing is one of the most price sensitive segments, and any change in the cost or pricing structure would have a direct bearing on the buyer’s decision to purchase a property. Developers might be able to tweak the pricing strategy and might be able to come up with more projects that fit within this price bracket.
Scope for new project launches: Developers, who have been postponing the launch of their new projects due to the high material cost and high stamp duty, might consider launching these projects now given the recent changes in the regime.
Buyer Sentiment: With changes in the indirect tax regime and a reduction in the burden of stamp duty and registration charges by the state, the buyer sentiment in the real-estate development space has seen a positive change.
Plotted developments and affordable housing schemes: These developments are more susceptible to the changes in material cost as they mostly witness construction-led cost. This update would directly result in these schemes witnessing a higher quantum of benefits.
Cost benefit to be passed on to the buyers: Unless the developer has locked the price of the property or has already incurred material cost in bulk, the benefits of the recent updates might not be visible to the buyers as most developers in Noida would consider these as an opportunity to increase their margins.
Other charges beyond the GST: The stamp duty, registration charges, circle rate, and other municipal charges still constitute a significant portion of the price paid by the buyer. Any increase in these components might nullify the benefits witnessed due to the changes in indirect tax.
Quality vs. Price: With the buyers now becoming more conscious, it would be a challenge for the developers to balance between the quality of project and the pricing. Developers would need to ensure that they do not compromise on the key offerings.
Transparency on the applicability of GST: The buyers would need clarity on the applicability of GST and whether any benefits have been passed on to them in terms of reduced cost. This would be more important for the buyers to understand the applicability of taxes on ancillary services like amenities, club house maintenance, etc.