March 08, 2019

GST Reduction and Its Impact

The GST council has reduced the rates to 5% and 1% on affordable housing from 12% to 8% affordable housing respectively effective from 1st April, 2019. The GST council has also redefined the definition of affordable housing. Units less than 60 square meters (645 square feet) in metropolitian area and 90 square meters (968 square feet) in non-metropolitan area and valuation less than Rs. 45 lakhs would be considered as affordable housing.

GST reduction and its impact Firstly, the GST reduction will narrow down the price gap between under-construction projects and ready projects. This in turn will revive the demand for under-construction properties especially from builders concentrating on lower income groups because now the gap between under-construction and ready properties is just 1%.

The consumer sentiments are expected to rise significantly. As per research data, around 40-45% of ongoing supply in major Indian cities falls below Rs. 45 lakh ticket size. This will stimulate the demand of end users and will gradually improve market liquidity.

The pricing strategy is an important dimension here. If one thinks that the price will decrease significantly then it will be a misunderstanding. The developers will not receive input credit now as against earlier. The builders will recalibrate the base price of their projects to compensate for the loss of input tax credit. Thus, the effective price will rise up. The buyers can make their purchasing decision now.

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