Shares of realty companies on Monday advanced after government cut GST rate on under-construction properties to boost real estate sector and ease the financial burden on home buyers. GST Council on Sunday decided to lower rates on under-construction housing to 5% and affordable units to 1%, without input tax credit. The new rates will take effect on 1 April.
"This is a welcome move on the part of government. It will certainly give a fillip to the housing sector," said Manish Jaiswal, CEO of Magma Housing Finance.
The BSE realty index rose 1.7%.
Among the real estate companies, DLF shares rose 3%, Godrej Properties 2.4%, Indiabulls Real Estate Ltd 3.8%, Oberoi Realty 2.4%, HDIL 4%, Unitech 2.22%, Hubtown 2.8%, Marathon Nextgen 6.1%, Sunteck Realty Ltd 4%.
"The reduction in the GST rates for under-construction projects is the most decisive move by the GST Council with a clear focus on demand stimulation. This move will give the necessary fillip to the demand in under-construction segment, which has been suffering from low sales levels for last many quarters. The elimination of input credit tax benefit may hit profitability for the supply side; however, the potential demand generation as a result of this move will far outweigh any negative aspects leading to greater sales numbers and revenues," said Shishir Baijal, chairman and managing director of Knight Frank India.
Baijal estimates that the reduction in GST can potentially reduce the buyers’ payout by 6%-7% on the overall purchase, depending on the category. The increase in sales will bring down the unsold inventory which has been afflicting the real estate sector.
The GST rate on affordable housing projects too has been lowered from an effective 8% to 1%. The new rates will be effective from 1 April. Under-construction properties priced up to ₹45 lakh would qualify as affordable housing projects for the purpose of GST relief in metro cities as well as non-metro cities.
According to Anarock Property Consultants data, there are as many as 5.88 lakh under-construction homes lying unsold in the top seven cities. Of these, 34% are priced below ₹40 lakh alone. With affordable housing now being defined within ₹45 lakh budget, more properties qualify for this ‘sweet spot’ category. The GST cut, coupled with this critical change in definition, will induce more sales in homes falling in this budget range – a win-win for both builder and buyers, expects Anarock Property Consultants.