Dr. Samantak Das, Chief Economist and Head of Research & REIS, India, JLL
In India, developers do not get the full benefit of Input Tax Credit (ITC) in real estate and hence the high GST rate on cement, currently at 28%, adds to the final apartment cost. The government’s decision to bring down the GST rate to 18% is a welcome move. The impact of this reduction in rate will vary across different segments of the real estate market. Residential being a strong driver of Indian real estate, understanding of the impact on home price is important. From our ground level data pertaining to live projects, we believe the reduction of home price may range between 1-1.5%, considering various types of residential projects and effective cement cost reduction considering the cascading and base price adjustments. This is with the assumption that developers would transmit the entire benefit to the customer. Prima facie, it may appear that there may not be a drastic slash in home prices. However, for affordable and mid-segment housing, we are likely to see improvements in demand; for premium and luxury properties, the impact on buyers’ affordability would be marginal but the developers can reinvest the savings in the cost of construction to improve quality and amenities. From a macro perspective, there would be a positive impact on affordability and sentiments of homebuyers. Developers would gain in terms of easing working capital pressure. The overall savings in cost outflow will be significant and beneficial to all stakeholders of the real estate and construction industry, directly or indirectly.