GST Impact on Real Estate Industry

The Goods and Services Tax or GST was rolled out on the 1st of this month by our honorable President and Prime Minister of India. The aim of this new tax, GST is to transform India with its - "One Nation, One Market, One Tax" principle. This simple tax is replacing a large number of indirect taxes, which were levied on a variety of goods and services.

Its implementation has created a lot of confusion in the entire nation with respect to the price of various commodities (goods) and services. The reason for this is, before the 1st July 2017, a host of taxes were levied on various items such as sales tax, service tax, value added tax (VAT), customs duty, octroi, excise duty etc. Some of these taxes had different values in different states since they come under the jurisdiction of the state or were shared by both state government and central government. For example, manufacturing tax (excise duty) is levied by the central government which is almost uniform in the country, but sales taxes, which are levied by a state government is different in different states.

Subsequently, GST is touching every sector of the economy and its implementation is producing ripples in various segments - Real Estate, Agriculture, Manufacturing, IT, etc.

The Real Estate Sector in India is one of the most important sectors of its economy. It ranks second in employment generation after agriculture in India. It contributes an average of 5-6% of GDP and also stimulates demand in a large number of ancillary industries.

With time, the implementation of GST is expected to generate a positive effect on realty sector. Currently, the sale of land and building, have been kept out of GST ambit. It is seen that it will revive the buyer and investor interests, by bringing more transparency in taxation and will minimize unscrupulous transactions. This will assist in improving the market of real sector and is said to act as a sentiment booster.

The GST also helps in revamping its supply chain mechanism. Before GST, a Contractor had to pay service tax, excise duty, octroi, entry tax at the time of procurement of the materials. These all are replaced by GST and will help in increase of the margins of the Developers and Contractors. The main benefit comes from the construction of land and building as the cement, iron, and bricks are charged with reduced taxes. The logistics cost of transportation of cement, bricks, and iron is reduced through the subsuming and streamlining of the taxes. The contractor may transfer this benefit to the property buyers or the end consumers to increase the sale.

The cloud storing of invoicing during procurement of materials in various stages of construction will also help in recording all real estate projects running in India. After the launch of GST, the number of property searches in Hyderabad's residential category has seen a jump of a third in the past one year, because of availability of properties at desired price ranges and expected improvement in regulatory policies. The properties which are priced below Rs.80 lakhs has seen the highest number of searches in the past 1 year. While the searches for luxury properties, which were priced at Rs. 1.5 crores, had seen a marginal growth as against a flat growth in the number of searches of properties in other metro cities of the country.

The GST impact on real estate is expected to be positive in the long run, as it will bring a lot of transparency and accountability in the projects run by different contractors and developers in India. The sub summation of many taxes with the GST will increase the profits of Contractors and it can surely be transferred to the consumers or property buyers, to increase the sale.

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