Unlike what it was supposed to do, reduction in Goods and service taxes failed to provide much-needed respite both to the builder and aspiring buyers.
Affordable housing in Indian real estate market is upselling as the sunrise segment. To help builders create additional housing and make it advantageous for home buyers, the government has introduced various measures to ensure demand supply parity in the real estate segment.
From CLSS- credit linked subsidy scheme under Pradhan Mantri Awas Yojna to subsidised loan for infrastructure status from Floor Space index to concessional rates to developer. Despite all, and even a drop in GST on affordable housing from 12% to 8% is a hefty load on buyers and is restricting implementation of low-cost housing in India.
The cut on Goods and service tax by the Central government does not seer well for the growth of affordable realty projects in the country. Cost of land and construction variables is already in height with a unit’s price, the drop in GST somehow brings down the cost of construction but delay in approvals and project development stage again affects the cost.
If you are planning to indulge in an affordable housing in some luxury like Prestige willow Tree, Bangalore, this is for you. To give you a rough estimate, what a developer pays and what he recovers from buyers has a shortfall of 50 rupees for him. He pays 312 rupees per square footage including all direct and indirect taxes and recovers rupees 260Sq.ft. from buyers which is a big loss for any developer. Likewise, if he increases the property value to cover his loss then the end user will pay rupees 31000 extra on a 600Sq.ft. unit.
Furthermore, credit linked subsidy scheme is helping too, but only to a certain limit as taxes are putting the burden on both home buyers and builders. Home buyers are already paying interest on home loans buckled up with stamp duty, it would be rational to relax the tax to minimum rate possible. In fact, under Pradhan Mantri Awas Yojna scheme, the government ought to increase the interest subsidy for first time home buyers and the bracket of carpet area. Likewise, for affordable housing, a measure for the tax benefit can also be a helpful move.
On the whole, the revised rate of GST has created an uneven level playing field for both the buyers and builders. To have a win-win situation for all, if the government consider the above measures, it would smoothen the development process and eliminate the challenges existing in the construction sector. Reduced tax means less cost of production and thereby lesser cost of purchase for aspiring buyers.