India Inc India Inc: Tuesday, 18 July 2017 14:19

GST alert on India's real estate sector

by Deepak Varghese

The impact of the Goods and Services Tax (GST) is set to shake up India’s property markets.

The Indian real estate market was just beginning to steady itself from the impact of demonetization in November last year by clocking in smart sales in February, March and May nation-wide. However, the dual impact of GST implementation and the Real Estate Regulation Act (RERA) in July, has got the industry extremely worried.

The typical profile of homes that were sold this year can be identified as ones that cost less than $125,000 in rupee terms, reflected brisk construction progress and was located in an area of reasonable infrastructure such as schools, malls as well as transport. If any of these criteria were not met, the project would have had very poor acceptance by the market given that buyers are now typically end users and the retail and high net worth (HNW) investors are a rare breed.

In fact, even Alternate Investment Funds and Non-Banking Finance Companies have modified their criteria since DeMon to include the above stipulations for development in their lending guidelines as they believe that this segment is one that will have sustained sales going forward.

Since March of this year, a majority of development companies have been expanding their product offering by including affordable homes in their portfolio – typically homes less than 600 sq ft carpet area and costing below $30,000 in rupee terms. The affordable homes category was given a boost in this year’s Budget with tax sops to the developer making income generated under this scheme free of taxes and also offering first-time buyers of these homes whose income was below defined threshold levels as recipients of interest rebates directly credited to their loan account. This was the government’s way of ensuring that they fulfilled the national agenda of homes for the economically weaker segment as well as ensuring a boost for the real estate sector to keep up employment levels in a sector that was reeling from two consecutive bad years.

This article was first published in July Edition of India Investment Journal. Click here to view full article.

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