Mumbai: As home buyers switch preference to ready-to-move homes to escape tax on under-construction properties, builders have started rolling out discounts and promotions to lure them back.
Buying properties under construction attracts goods and services tax (GST) at a net effective rate of 12% (against around 5.5% of sales tax plus service tax in the pre-GST days), while GST is not applicable on completed apartments with occupancy certificates.
Among developers attempting to push sales of under-construction properties in such a market are Tata Housing Development Co. Ltd, Keystone Realtors Pvt. Ltd which sells homes under the Rustomjee brand, and Omkar Realtors & Developers Pvt. Ltd. Their initiatives come at a time when most builders focus on selling ready properties after the implemention of Real Estate (Regulation and Development) Act (RERA) in May. Ready-to-move homes are also out of the purview of RERA, making it easier for builders to market them.
Tata Housing, which is running a campaign called “Move In" for its ready properties, is looking for innovative ways to push sales of all its under-construction projects, the company’s corporate marketing head Rajeeb Dash said.
Starting with its Rio De Goa project in Goa, where 60% of the construction is completed, it is rolling out a new initiative to market some of its best units as “Sunset Apartments" in a bid to push its sales, said Dash. The company is planning similar campaigns across all its projects.
“The market is now tilted towards end users rather than investors unlike two years ago. Hence, ready properties are much more in demand. Today, we need to be innovative to give some kind of a push (to sell under construction projects) in the form of new packaging or flexible payment schemes," Dash said. At present, around 70% of its sales come from ready apartments.
A Mumbai-based developer who did not want to be identified said sales of under-construction properties during the festive season were 20% below last year’s. “Customers are definitely not ready to take the extra tax burden of GST. So, if projects are over 70% completed, customers are holding off their buying decisions because they are aware the project would be ready in another year or so," this person said.
Jaxay Shah, president of builders’ lobby Confederation of Real Estate Developers’ Association of India (CREDAI), agreed that sales have been impacted at premium places like Bandra in Mumbai and Gurgaon in the National Capital Region (NCR), where land accounts 40-70% of the overall cost of the project.
“The government has given us land abatement of 33% under the GST, but the fact is, in prime locations, average land portion is around 40-70%. So, where land price is above 5-6000 per sq. ft, people are holding off buying and looking for discounts. The problem is far acute when land price is above 15,000 per sq. ft," Shah said.
GST is levied upon two-third of the overall property value as the government has given a discount of 33% against the land price.
Keystone Realtors is giving a one-year ‘EMI holiday’ for some of its ongoing projects. “GST brought an extra burden. In certain cases, where we feel the profitability is getting affected, we have passed on to the customers, and in certain cases we have taken the hit," said Kaizad Hateria, brand custodian of Rustomjee.
Though the negative impact would be mitigated by the positive macroeconomic indicators in the long term, he said the company is offering various packages, financial offers and interest subvention schemes to attract customers to its under-construction projects.
“We see strong headwinds especially in those projects which is six to one year away for possession," he said.