The reduction in the GST rates of housing is on its way as the recommendations for the same has been submitted to the Council by the Group of Ministers (GoM) appointed by it for the purpose. Led by the Deputy Chief Minister of Gujarat, the GoM has brought down the tax rate on the affordable housing from 8% to 3%.
The report will soon be discussed in the Council’s meeting where diminishing the tax rates on cement are on the talks. The cement tax rate is anticipated to decrease to 18% from 28%, which will encourage the Real Estate sector.
The meeting’s agenda includes the slashing of GST rate in cement and the report referring to the lowering of the tax rate in housing. Prior to the Lok Sabha elections, the housing sector is being emphasized by the Government, as learned from the sources.
The meeting is positive towards changing the affordable housing definition by reducing its tax rate to 3% for an increased carpet area. At present, the units in the affordable housing category possess a carpet area of 50 square metres that is expected to rise to 80 square metres so that more people can afford it. This move would be beneficial to both the potential home buyers and builders.
To bring down the GST rate from the existing 12% to 5% on the under-construction properties, has also been put forward by the panel of Ministers that has been set up for taking care of the issues regarding GST. But that the benefit of ITC (Input Tax Credit) will not be available on transactions accompanied by the rate cut, has been asserted.
Till date, the under-construction properties in the affordable and premium housing categories charge 8% and 12% GST, respectively. These are the under-construction properties that haven’t acquired the completion certificate when being sold. But once the completion certificate has been issued, the property is free from the GST charge.
The Government has recently thrown light on relieving the Indian Real Estate sector from the burden of high GST rates and the issues regarding it would further be addressed by the Council in its meeting.
The decrease in the GST rate on under-construction units that do not possess completion certificate, from 12% to 5%, will turn out to be a big bonanza for property buyers and developers before the elections and the Government is working at it. In the meantime, the affordable housing category will charge only 3% GST. These proposals are likely to be taken up in the meeting. At present, GST is being charged at 12% alongside the stamp duty at 6%.
Should You Buy a Home Now?
With the recent slashing of the Repo Rate, the home loans are expected to become inexpensive. In addition to this, the affordability index is also very low and the impact of structural reforms in the industry, make Real Estate investments appear immensely profitable.
Majority of the Indian cities are witnessing the decline in property prices in comparison to the annual household income on an average. Such a favourable time may not come to you in a lifetime so better make the most of this chance to grab your dream home.
As per the standard, affordability should be 4.5 times the city’s average yearly household income. But the reports of a global Real Estate consultant state that the affordability index has gone below the benchmark level in the Indian realty markets except in that of Hyderabad, Mumbai and National Capital Region (NCR).
Mumbai reigns as the most expensive amidst the country’s Real Estate markets, with an affordability index as high as 7 times its average household income per annum. Both Hyderabad and NCR have scored 5 individually. The affordability index is 4 in the major cities of Chennai and Bengaluru. On the other hand, the property prices are only three-fold the average yearly household income in Pune, Kolkata, Ahmedabad. But there has been an overall improvement in affordability across all these cities when compared to 2010 (see below)
City Affordability Index in 2010
Mumbai 11
Hyderabad 6
NCR 6
Bengaluru 6
Chennai 5
As analyzed by the Managing Director and Chairman of the concerned Real Estate consultant, the home affordability across the major cities of India has improved due to the encouragement of affordable housing and reduced ticket sizes on an average. This significant change in the affordability index is the cause of whatever little growth in sales the previous year.
The enhanced affordability of properties can also be attributed to the dwindling of those residential units’ average size that has launched during the period of the study. Ahmedabad and Hyderabad realty markets stand out with an increase in their average home sizes by 7% and 4%, respectively. On the contrary, the house sizes in Bengaluru, Mumbai and Pune have diminished abruptly by 18%, 25% and 24%, respectively.
The focus is being shifted to the affordability homes to cope with the decline in yearly sales across the prime realty markets of India.
The aforementioned Chairman believes that enhancing the affordability of property is crucial for restoring the demand in the housing market. The affordability is expected to strengthen further with the developers taking up more mid-ranged and affordable projects.
Besides, RBI has also cut the Repo Rate from 6.50% to 6.25% in this month, which in turn is likely to minimize the cost of borrowing for home buyers. In simple words, home loan rates may become less expensive. Not to forget the list of structural reforms that are playing a major role in making the Real Estate sector attractive to the investors.
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