Housing and Real Estate Price Decreases due to GST and RERA : Housing Price Decreased about 5% in Mumbai and 7% in Pune- The year 2016-17 saw a perfect storm of events come together to dampen demand for housing in India. First came demonetisation and the resulting purge of the cash component in real estate transactions. Then the Budget delivered a rude shock by capping the tax break from ‘loss on house property’ at Rs. 2 lakh a year, for second and subsequent homes. This effectively put paid to the ‘investment’ buying of homes, a key source of housing demand in Tier 1 cities. Cloudy job prospects, stingy increments and layoffs for the IT sector dampened purchases by this crucial segment too.
According to MHADA and RERA, prices of real estate in Pune should come down by Rs.600 to Rs.700 per square feet as set off is available in 160 different items used for construction. RERA remarks contradict what the real estate body has been maintaining about the prices of flats. According to CREDAI, builders body, the impact of GST will be felt only after some days. Property prices in Mumbai Urban area will be reduced by Rs. 200–300 / sqft. in all projects, however the overall hike in taxes from 5% to 12% will negate that benefit for all projects that are not in the affordable segment. Infact, it will lead to increase in prices and it will be cheaper to buy ready possession properties instead.
Here are the Four Reasons Why Housing and Real Estate Price Decreases due to GST
Reason #1: Cost of home ownership: Goods and Services Tax (GST) will eliminate the restrictions on credit utilization. GST would lower the tax burden on input items like cement, steel etc., as tax credits would be available for set off at various stages leading to lower construction costs.
Reason #2: Double Taxation: Ideally, in India anybody paying VAT on 70% pay service tax on 30%. But unfortunately, this concept do not synchronize well for the real estate sector because of unsynchronized methods of operation between the VAT and service tax laws.
Reason #3: More Transparency and Less Compliance:With ever changing norms and rules, as a residential property buyer, its best to check the property documents before buying a new property. Currently, there is a high degree of overlap of tax bases and ambiguity on the rate of taxes. Implementation of Goods and Services Tax (GST) would provide an audit trail for better control and monitoring, benefiting the Indian real estate sector.
Reason #4: Unified Tax: It is significantly crucial in the real estate industry to have a uniform tax base which GST addresses. The developers currently pay tax on the purchase of raw materials. Once the taxes are uniform, the likelihood of paying lesser taxes will pass on to the common man/buyers as a benefit.
Investors weighing options had no means to compare real estate returns with those from asset classes such as shares or gold, to make sensible choices.