The recent reform in the GST rates of construction raw materials is expected to have a positive influence on the real estate landscape. This will upgrade the cheer of the festive season for the first-time homebuyers. Read more for a detailed understanding of the GST amendments, their impact on the real estate industry, and the extent of their impact.
GST, known as the Goods and Services Tax, is a vital tax levied by the central and state governments. It is a unified indirect tax applicable uniformly across the country. Effective from July 1, 2017, GST has simplified the tax process in manufacturing and distribution processes and has also enhanced transparency.
Recently, the GST Council has made yet another landmark decision to reduce GST rates on certain materials. This step has proved beneficial in many sectors, including the real estate sector. GST 2.0 impact on real estate will be optimistic. Indian real estate has been evolving with dynamic homebuyers’ sentiments. The GST rates on raw materials like cement, marble, stone, tiles, and paint have been reduced. Cement and stone account for 40% of the total construction cost borne by the developers.
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Impact of GST 2.0 on Real Estate
GST rate is one of the important factors to be considered while homebuying. According to an industry expert, the reduction in the GST rate will reduce the overall cost of construction by 2% – 4%. This will be helpful for the middle-class and first-time homebuyers as and when developers pass on this benefit to their customers. The reduction in the construction cost will reduce the overall cost of housing, which has to be paid by the homebuyers.
Individuals who are planning to design and build a house on their own will directly benefit from this tax reform. The reduction in housing costs will increase the demand for properties and boost the overall consumption across the top markets and micro-markets. Developers supplying affordable inventories will gain significant profit margins. The simplified two-slab rate will streamline the tax process and help developers to predict and manage construction budgets efficiently.
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Will GST 2.0 Benefit The Homebuyers?
The recent GST reforms will steadily benefit homebuyers in terms of budget planning and homebuying. Cement constitutes a major percentage of the construction cost; thus, its rate has reduced from 28% to 18%. Apart from this, other raw materials like stone, granite, sand, tiles, and paints have also experienced a decrease in rate to 5% – 18%. The granite and domestic stone saw a tax reduction to 5%.
The lower slab rates will ease the burden of taxes and surging payments on the developers. The lesser construction expenditure will further result in lower property prices. Homebuyers can get clarity on the tax and payment structure. And this leaner tax structure will remove the complexities of payments and compliance
The affordable housing segment, which is taxed at 1% will witness more savings on the part of first-time homebuyers. Developers will reflect the lower spending on raw materials in the property prices, which will make homebuying more manageable for homebuyers. The mid-segment property and luxury properties will also offer cost benefits to some extent.
Before and After GST 2.0: Property Prices and Savings
The table below is an in-depth analysis of the before and after effects of the GST reforms in Indian real estate.
| Factors | Before GST 2.0 | After GST 2.0 | Impact / Outcome of GST 2.0 |
| GST on an under-construction apartment | 1% (affordable) and 5% (non-affordable) without ITC. | Rates remain stable with simplified terms and legal compliance. | No change in rates, but increased transparency and reliability. |
| GST on ready-to-move apartments or completed housing | No GST (only Stamp Duty and Registration fees are applicable). | No change and SDR as applied. | Property prices remain unchanged under the reforms. |
| GST rate on cement | 28% | 18% | Reduced by 10%, further reduction of construction cost 1% – 2%. |
| GST on marble, tiles, sand, bricks, and steel | Ranging around 18% – 28%, depending on product type and procurement. | Reduced to around 12% – 18%. | Around 1.5% – 2% lower cost of construction. |
| Domestic stone | Around 12% – 18%, depending on the product type | Reduced to 5%, imported stone remained at 18% only. | It will influence the property prices to some extent. |
| Overall Construction Cost | Remained higher due to multiple tax slabs and inflated rates. | It is expected that the construction cost will reduce by 2% – 4%. | The developers will have a scope for profit margins, and they will pass on the savings to homebuyers in terms of competitive housing rates. |
| Tax slab | Complex and multiple slab structure with many further classifications. The slabs included – 5%, 12%, 18% and 28%. | A leaner, two-slab tax structure, comprising 5% and 18%. | It makes classification easy to understand and lowers the compliance complexity. |
A Glance At Total Savings By GST 2.0
Considering the above factors, let’s understand which homebuyers will save on the property purchase. The reduction of the construction cost will lower the property rates across all segments accordingly. This leads to savings on the part of homebuyers, depending on their property type.
The table below gives a detailed breakdown of the property cost and savings led by the reduced GST rates on the construction materials.
| Housing Segment | Average Property Price | Reduction Rates Post GST 2.0 | Post GST 2.0 Savings |
| Affordable Housing | ₹ 40 Lakhs – ₹ 60 Lakhs | 2% – 4% | ₹ 80,000 – ₹ 1,20,000 |
| Mid-segment Housing | ₹ 70 Lakhs – ₹ 1 Crore | 1% – 2% | ₹ 70,000 – 1,50,000 |
| Luxury Segment | ₹ 2 Crore – ₹ 3 Crores | 0.5% – 1% | ₹ 1,25,000 – 2,00,000 |
In the case of major markets and metropolitan cities, the property prices will not be much affected by the GST reforms. Due to limited land availability, robust demand, and premium specifications, properties in these cities will remain unbothered by the GST 2.0.
Points To Be Considered Regarding The Benefits of GST 2.0
While the amendments by the GST 2.0 are poised to boost the market consumption and lower the property prices, it is vital to consider the following points before planning to buy a home.
- Developers will primarily benefit from the reduction of construction costs led by the GST 2.0.
- Developers may not reflect the discounts for homebuyers in the case of the existing and already procured raw materials.
- Only in the case of under-construction properties and newly launched projects, homebuyers can save on the property cost compared to before GST 2.0.
- Some developers can increase the base price of the property and give discounts on the said price. Homebuyers should demand invoice clarity from the developers.
FAQs
Does the price of all marbles and stones reduce significantly after the GST reforms?
The granite and domestic stone saw a tax reduction to 5%, whereas imported marble stood at 18%.
Will GST 2.0 change the stamp duty and registration on the property?
No, stamp duty and registration will remain the same post the GST 2.0.
Which housing segment will benefit from GST 2.0?
The affordable and mid-segment housing segment will benefit from GST 2.0. Construction materials make up most of the construction cost; thus, the reduction in this cost will benefit mid-income homebuyers to a great extent.
Will GST 2.0 influence the prices of ready to move apartments?
The ready to move apartments will be less likely to be influenced by the GST reforms as their materials were procured before the recent GST amendments. Thus, the discount will not be applicable to these properties.
