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Real estate companies prepare to pass on tax benefits to buyers post GST

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Real estate companies prepare to pass on tax benefits to buyers post GST

Depending on the location and construction stage, prices of homes may witness a correction of up to 3% or an increase in prices a little due to the Goods and Services Tax (GST). Real estate companies are now preparing to pass on tax benefits to their customers post GST and this may lead to slight changes in prices of property across the country according to industry experts and developers alike.

Prices of ready-to-move-in apartments which have completion certificates are expected to stay similar since these properties do not fall under the purview of GST. Any changes in prices in this segment will be based only on the demand and supply equation according to experts. On the 1st of July, 2017, Mumbai-based Oberoi Realty Limited launched its Zero GST Impact marketing campaign, tapping into growing uncertainty over the impact of the new tax rate on prices of property. The company kept the earlier tax rate constant for the first 100 bookings made for 6 of its projects that are presently under construction. According to the company’s managing director, Vikas Oberoi, buying homes may not become costlier after GST since Oberoi Realty will be passing on tax benefits to both new and existing customers.

As per the new taxation structure, purchasing under-construction properties will attract a net tax rate of 12% as compared to the previous rate of approximately 5.5% which includes service tax and value-added tax. However, on account of most builders being eligible for input credit on vital raw materials, the base prices of properties may slightly go down. According to Oberoi, GST will not increase costs for customers. The input credit will cover the GST that is needed to be paid. He added that in case all developers adopt a fair approach, the prices of homes will stay neutral or may increase by only 2-3% for a few projects.

Others also believe that prices of ongoing properties may witness a 1-3% correction after deduction of input credits based on the construction stage and the location. As per reports, new projects which have 100% input credit passed to the buyer and with land costs being 50% of the project cost, prices of property should fall around 1% in the northern and western markets and around 3% in the southern markets.

Home buyers may also end up saving between 3-4% after GST based on savings of builders on major components like cement and steel. Brigade Enterprises Limited is also running its campaign where it has reduced prices across 22 ongoing residential ventures in Chennai, Bangalore and Hyderabad. According to the company’s chief executive (residential), Om Ahuja, for new bookings, the company is working on how benefits can be passed onto customers. Wherever there is any possibility of savings, the company will pass it on to customers according to him. He added that there are still some challenges related to the reworking of contracts with existing buyers who have partly paid for projects under construction.

On the 15th of June, 2017, the Central Board of Excise and Customs directed all Indian builders to pass on the lower tax burden after GST to property buyers through reduced instalments/prices. According to experts, the price impact will vary from one project to another based on how much credit that can be availed by the builder on purchases of material. In case 90% of construction has already taken place and builders have already bought the material, they may not be eligible for any credit on the same.

Many experts also feel that in case of luxury homes, prices will go up since only input credit will not be enough to reduce prices while in case of low-cost and affordable housing, prices will remain neutral. DLF Limited, the largest real estate firm in the country in terms of market value, is also planning to pass on input credit benefits on under-construction projects to customers. However, price changes will be affected by the market and not as much by GST according to the chief executive officer at the company, Rajeev Talwar. He stated that every developer was required to pass on the benefits that they received through input credits. However, another 6 months were needed in order to see how the market performed.

The chief financial officer at Alpha Corp Development Private Limited, based in Gurugram, stated that buyers who have paid for apartments in projects which are less than 60% finished, will receive higher benefits in comparison to those who have invested in projects that are nearing completion on account of the higher quantum of input credit which developers will get in the initial construction stages.

 

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