Home / Industry / Infrastructure /  Builders feel the GST pinch, rush to finish high-end projects

Mumbai: Property developers are rushing to complete high-end residential projects as buyers prefer ready-to-move-in homes to save on goods and services tax (GST) for under-construction projects.

Big and mid-sized real estate firms with healthy credit lines are speeding up construction, particularly for luxury projects, where customers have to shell out an additional 12% GST.

Under the new indirect tax regime, which was implemented last year, under-construction homes attract 12% GST as against 6% tax (service tax plus value-added tax) in the pre-GST era. This is excluding the stamp duty of 5% that has to be paid by customers.

For affordable and low-cost housing, the GST rate is 8%. However, ready apartments with occupation certificates (OCs) are kept out of the purview of GST.

Manisha Chhatwani, 44, an entrepreneur who was looking to buy an under-construction two-bedroom apartment in the Mumbai suburbs, now plans to pay slightly more for a ready-to-move-in apartment. “My budget is going haywire. The amount we have to give to pay as tax for a 1.5-2 crore apartment is huge."

Several buyers are staying away from projects, which are midway into construction. Most are waiting for the project to complete to avoid the construction risks.

For instance, Mumbai-based Hiranandani Communities is working towards completing its high-end residential projects much before deadline. Niranjan Hiranandani, chairman of the group, said the company is speeding up the entire construction process.

“GST was supposed to be tax-neutral, but in reality, it is much higher. People are postponing (to buy homes) in order to save GST." At present, two of its completed luxury projects, Atlantis Hiranandani Gardens in Powai and One Hiranandani Park in Thane are being marketed as Zero GST. “For every single building, we are trying to prepone the delivery. Everything is much faster and quicker now."

Mumbai-based Wadhwa Group had received OCs for six projects in the last 18 months, said Vrushank Mehta, head, corporate strategy and land acquisition. Construction on these projects were advanced by 8-9 months, he added.

“We always had strong focus on project execution and on-time delivery, but post advent of GST, we have pushed our teams to deliver projects and secure OCs before time, as we get advantage of nil GST on OC inventories," he said. According to data compiled by property advisory Liases Foras, supply of ready-to-move-in homes priced over 2 crore has jumped 23% across the top eight cities, including Delhi-NCR, Mumbai, Bengaluru and Hyderabad, to 4,800 units in the first six months of 2018, compared to the same period last year.

Pankaj Kapoor, founder and managing director, Liases Foras, said there was a growing focus among developers to complete projects rather than launching new ones. “This is clearly driven by customers’ preference to buy ready properties due to the added advantage of saving GST."

According to Jaxay Shah, president of Confederation of Real Estate Developers Associations of India, home sales have been hit due to higher tax that buyers have to shell out. “Customers are deferring plans to buy homes. Most times, it is a long waiting time of two-three years," he said.

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