GST Reform – Will the 2-Slab Theory revive Affordable Housing in India?

The Indian real estate sector remains optimistic about the revival of the affordable housing segment with the soon-to-be-happening GST reforms. After witnessing high demand and rendering maximum possible affordable homes, the momentum witnessed a slowdown.

However, the 2-slab GST restructuring is likely to boost the market positively. The Indian real estate, which is majorly dependent on auxiliary industries, expects more budget-friendly property prices.

According to news reports, the PM Modi-led Union Government plans to introduce 5% and 18% tax on construction materials. Like cement, steel, and other will fall under 18% instead of the current 28 percent GST slab.

At present, cement, steel, paint, tiles, and sanitary fall under the distinguished GST Slabs of 28% and 18%. However, the restriction of GST (Goods and Services Tax) will restore pricing and is likely to reflect on property prices.

GST reform will impact the Indian real estate majorly because stamp duty charges differ from state to state in the country. Thus, the prices of immovable assets vary across the country.

Expert opinion | what market experts says

According to the report published in Hindustan Times, market experts feel, there will be a slight impact on affordable housing. At present, the tax implication for affordable homes is 1%, and the lower input costs, primarily the restoration of input tax credit (ITC), can bring down prices from 2% - 4% in the affordable housing segment. Similarly, the GST on the real estate sector, especially the mid-segment, can expect a GST cut from 5-3% to 2-3%.

The GST on residential property will witness a slight alteration after GST reform, which is expected to take place near Diwali 2025. A major blow can be seen in luxury properties, with input costs for luxury products may reduce to a maximum value of 40 percent.

How will GST reform impact Affordable Housing in India?

Most of the time, developers transfer the increased input cost to homebuyers, either partially or completely. According to a news report, approximately 5-6% of the total input cost is reflected in the property price rise directly.

In case of affordable housing, a minimal rise of Rs. 500- 800 per sq.ft. results in a massive increase of residential property by some lakhs. The GST impact on housing will affect homebuyers under all segments, from affordable to luxury housing.

The GST reforms 2.0 in India will be inch homebuyers near to their dream home as the lower property prices during the festive season will be a win-win situation.

How will GST reform impact Developers in India?

The GST reform will impact developers across all segments positively. Unlike earlier, when price rise in auxiliary industries used to burn a hole in their pocket. A straightforward reflection of GST restructuring will be visible on developers, as they will have to balance the values of immovable assets while considering their profit margin.