GST COULD USHER TRANSPARENCY IN REAL ESTATE SECTOR, REDUCE COST OF OWNERSHIP OF HOMES
With the Goods and Services tax, participants in the real estate sector are likely to witness transparency in the functioning of the real estate sector besides reduction in the cost of ownership of homes, particularly if the GST rate is lower than the current rates put together.
However, a homebuyer could end up paying higher tax while buying a home as the same is likely to account for almost 20-22% of the property value as opposed to around 14% at present.
Another downside of the Model GST Law is that input tax credit will not be available in cases where the end product is made using the goods and/or services in an immovable property, other than plant and machinery.
GST is likely to help commercial property developers in a big way, who today are saddled with high costs as no credit is available on construction services used for developing a commercial property which is then rented out. Under the GST regime, commercial property developers in particular can expect smooth flow of credit. Besides, current restriction on construction related credits not being available for offset is expected to be removed. Obviously, this would bring down the project costs in the hands of the developer, which, in turn, should have a positive effect on rentals. However, If the credit restrictions continue, due to higher GST rates, the project cost are only going to get escalated further. Additionally, all business entities, including the trading companies should be able to take credit of the GST paid on the rentals, which in turn should help the developer community in negotiating better rentals.
To sum up, GST appears to be a benefactor for the real estate regime, primarily in light of the expected free flow of credit, which should translate into an increase in margin in the hands of the developer. Whether these benefits will percolate into the end customers / users is to be seen, more so because pricing in this sector is more driven by market forces than on costing principles
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