The Goods and Services Tax (GST) Council on February 24 slashed tax rate on under-construction residential properties which are likely to benefit home buyers, real estate developers in select cities, and housing finance companies (HFCs).
The GST rate was reduced to 5 percent without input tax credit (ITC) from the current rate of 12 percent with ITC. The GST rate on affordable housing was reduced to 1 percent without ITC compared to the current rate at 8 percent with ITC.
“It is a positive step but ongoing NBFC liquidity crisis is hurting launch momentum. Stronger developers asserted market share gains in the competitive market,” UBS said in a note.
“Within our coverage, Godrej Properties and Prestige Estate outperformed in recording sales bookings,” the note said. UBS maintained its buy rating on Oberoi Realty, Godrej Properties, Prestige Estates and Sobha.
Sharekhan is of the view that the move is positive for the real-estate sector and also for HFCs. Companies like Shobha Developers, Prestige Real Estate, Oberoi Realty to be among prime beneficiaries.
The decision is expected to boost demand and increase sales of under-construction properties as well as simplify tax structure and compliance for builders. The move is also in line with the government’s vision of ‘Housing for all by 2022’.
The Council also brought in a twin definition of affordable housing, on the basis of carpet area and cost, finance minister and head of the Council Arun Jaitley said.
A residential apartment, with a carpet area of up to 90 sqm in non-metropolitan cities and 60 sqm in case of metros with a value up to Rs 45 lakhs will fall under the affordable housing category.
Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (the whole of MMR) will be considered metropolitan cities.
“Strong impetus given to affordable housing is a positive which outweigh negatives. The cost to buyers may not be reduced by 7 percent in key mid-income markets. Developers in Bengaluru, Chennai, and Pune may partially pass on input taxes,” Axis Capital said in a report.
“Luxury markets like Mumbai and Delhi may see a reduction in cost to buyers. Increase in the area for affordable housing is positive for non-metros. We may see improved sales traction in under construction projects as well,” it said.
The key beneficiaries according to the domestic brokerage firms will be DLF, Oberoi Realty, Sunteck Realty. Ticket-size cap is likely to benefit Puravankara, Sobha, Prestige, Sunteck, HDIL, and JP Infra. Increase in non-metro area positive for developers like Ashiana Housing.
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