The state of the realty sector in the State has been rather depressing to say the least. Builders have completed projects that are lying empty all over the State. From the Kadamba plateau where scores of flats are empty to the south where projects have been delayed, the story is grim. The speculation around real estate has ensured that cost of land in the State remains abnormally high reducing the possibility of discounts for interested parties. In addition the imposition of infrastructure tax on projects added to the burden. Now the move by the Central government to bring in the GST bill could change the fortunes of the industry.
Presently, home buyers pay service tax and VAT on purchase of residential units when booked prior to their completion. There are also various elements of non-creditable tax costs, like excise duty, customs duty, CST, entry tax, etc paid by the developer on his procurement side, which is inbuilt into the pricing of the units. All these tax costs add up to anywhere between 22%-25% of the price of the units. The proposed GST should replace these multiple taxes with a single tax and should also ensure smooth flow of credits through the chain. Hence, it is widely expected that GST should reduce the construction cost in the hands of the developer and thereby aid in reducing or at least maintaining the current level of prices in the real estate sector. The only dampener could however be high GST rates, like the 27% GST rate that is doing the rounds which will offset any possible gains on incremental credits. Stamp duty is not proposed to be subsumed under GST and hence will continue as it is today.
Desh Prabhudessai, chairman, Credai, Goa said the rate at which the GST would be levied was very important. Double taxation, he said would disappear and he expressed the hope that the rate would be pegged at around 18 to19%. This he said would mean it would not exceed what they were paying at present.
He said “GST rollout would also mean they will be able to provide discounts as and when the demand was made. This would help the industry that has been in the dumps for a couple of years now with several builders having several unsold units. At present we are paying 20 to 24% in various taxes and this reduction will certainly help us. It will bring some momentum to the business.”
Another builder who operates in the mid segment ie the under Rs 50 lakh price range Kulashekhar Kantipudi of Milroc Development said the GST would help reduce hassles and smoothen the entire process.
Kulsahekhar said “I hope it falls in the 18-20% bracket, the benefits will be passed to the final customer. It will have a positive sentiment. The mid segment which is almost 50% of the reality market will benefit. People need houses in the State and this will mean a reduction in prices in this segment and units will sell.”
The mid segment which required housing priced between Rs 40-50 lakh has been depressed for a couple of years with the odd flat selling and the rest accumulating dust. Kulashekar said the benefits would be even greater in the lower segments like under Rs 30 lakh.
Dipesh Cholera of Shantilal Real Estate said the GST would give builders space but it would not make much of a difference because all the charges like metre deposit, water charges transformer charges would all have to be paid by the final customer. He however said “It is a good idea but in reality we will have to wait and watch. I want the tax to be lower when compared to what we are paying now.”
With regards to larger discounts for buyers he laughed and said it would not happen now given the inflated prices at which land was sold in the State. Perhaps in a year or two good discounts would enter the conversation when land prices cooled off.
A tax consultant when contacted said the GST was a very good idea, he said it would result in doing away with the restrictions on credit utilization. The entire credit chain in the system would benefit and of smart builders could manage this aspect properly they would reap a profit. Not wanting to come on record, he went on to say the GST would help the genuine buyer pick up a flat because the smart builder would offer larger discounts.
Other builders when contacted felt GST would be great for the industry because of the expected free flow of credit which would increase their margins. Now whether these benefits will percolate to the end consumer remains to be seen. Perhaps at last there is some light at the end of a very long tunnel for both builders and interested parties.
