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Which way will property prices swing after GST? Wait nears end

PUNE: The Centre's proposal of a 12% GST on sale of houses from July 1 has left both real estate players and consumers calculating amounts they have to shell out or pass on.  

In Maharashtra, GST will be in addition to the 6% stamp duty rate charged by the state. This will mean higher outgo on a headline basis. Experts feel the difference in final pricing will not be over 1-3%. TOI explains various scenarios under the GST regime.Existing levy and GST  

In Maharashtra, customers now pay 4.5% as service tax and 1% as VAT. They also pay a 6% stamp duty on the cost of the unit. This brings the overall tax rate to 11.5%.  

Under the proposed GST, there will be a 12% flat tax rate on the cost of a unit, in addition to the stamp duty that remains at 6%. This brings the overall tax rate to 18%.  

Will overall unit cost rise? 
By the looks of it, the answer is "yes". But theoretically, no. This is because developers are expected to bring down the cost of a unit, as they get input tax credit on raw material such as steel, cement and sand.  

Example: For steel, though the tax rate is fixed at 18%, a builder will have to pay a supplier only a part of this (18%). This will depend on how much the supplier has already paid for procurement. The developer is expected to pass on this low rate and the ensuing benefit of low cost of procurement to the buyer by reducing the unit cost.  

Will it work in practice? 
Nobody knows. Shrikant Paranjpe, chairman, Paranjpe Schemes, says: " All depends on how much credit vendors pass on to us. The calculation does not take into account land (outside GST ambit for now), which can have a bearing on the overall expenditure." So, if the cost of land is 10% of the overall project cost, there is a probability of the cost not rising too much or even coming down a bit. Where the cost of land is higher, for example 60-70% of the project cost, apartment prices will rise.  

For affordable housing 
"There was a 4.5% service tax exemption on affordable housing projects under 60 sq m in size. A 12% GST rate does not speak about these exemptions.So, affordable housing costs could go up due to higher tax," says Praveen Jain, president of the National Real Estate Development Council. "Even if the unit cost is cut, there is the Ready Reckoner rate. We cannot bring down the rates below it," Paranjpe says.  

Incomplete projects 
If a project is in the initial stage, there is a higher chance that a consumer will get the benefits of the lower-cost pass over. But if a project is 80% complete, any major benefit is unlikely. On completed projects, buyers might not get any benefit of cost reduction but will have to pay 12% GST if the property is not registered before July 1. If a consumer has registered a property, the old tax rates will apply. For those registering after July 1, the 12% GST will be applicable. For benefits of the low rates to be passed on, the consumers might have to wait for at least 3 months.  

New projects 
Gera Developments managing director said Rohit Gera says, "New projects will see lower input costs and will allow developers to quote lower prices. But a12% GST will be applicable on this quoted price. The impact depends on the ratio of construction costs to selling price."  

Resale projects 
There is no impact of GST.  

RERA-GST impact 
Most developers feel prices should go up by 5-8% if supply remains muted. This is because developers are cautious because of the Real Estate Regulation Act (RERA). "RERA and GST are coming in simultaneously.It will take a few months to see how the market reacts," said Gopal Sarda, Group CEO of Kolte Patil Developers.



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