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| Anuj Puri, Chairman – ANAROCK Property Consultants |
The applicability of GST in the Indian taxation system was a
move aimed towards ‘one nation, one tax’. Post land abetment, the applicable
GST for under-construction properties was 12% while ready-to-move-in flats were
kept out of the GST ambit.
Even for under-construction properties, there was a
ruling of Input Tax Credit (ITC) pass-over to the buyer to ensure that it
becomes a tax neutral proposition.
While calculations
and ITC pass-over still remain a challenge after 1.5 years of GST regime, a
recent announcement stated that there is no GST applicable only on
ready-to-move-in flats wherein sales took place after the issue of completion
certificate. This is likely to add woes to buyers as well as developers.
Impact on Buyers
Until now, all
properties that were treated as ready-to-move-in were out of GST ambit, so
buyers had significant choices. As per ANAROCK data, more than 90,000 units out
of total unsold inventory of 6.87 lakh units (as of Q3 2018) across the top 7
cities were ready-to-move-in - a massive 14% of the overall unsold stock.
However, after this announcement, projects which are
ready-to-move-in but do not have completion certificates will attract GST. For
buyers, this means that either their purchase cost will increase if they decide
to purchase such a property, or the overall spread of options will reduce.
After all, not all unsold ready-to-move-in properties may possess a completion
certificate.
Impact on Developers
Developers were already struggling with huge unsold
inventory and were leaving no stone unturned to make sales and generate cash
flows. The sudden NBFC crisis jolted the sector and fund-raising became a major
concern. Amidst all this, developers were cashing in on the buyers’ preference
for ready-to-move-in units since these were not liable for GST.
With this announcement, developers are now left with no
choice but to absorb the GST charges in ready-to-move projects that have not
been given completion certificates. If they attempt to pass this additional
burden on to their buyer, their ready-to-move-in units without completion
certificates will be at par with under-construction projects in terms of cost
to buyers.
Boost for Secondary
Sales Market
This announcement may be a blessing in disguise for the
secondary market. The secondary real estate segment does not attract GST as
such properties are by definition complete. Buyers eyeing ready-to-move-in
units will now certainly evaluate this option rather than paying 12% GST on
first purchase units.
Impact on Unsold
Inventory
The burden of unsold inventory in the primary market is
likely to increase as more home buyers may now consider buying resale units
which are exempt from GST. The additional GST levy on ready-to-move-in units
without completion certificates is an extra cost which developers simply cannot
afford to pass on to their customers. Given their existing woes with regards to
unsold inventory, developers have little choice but to absorb this additional
cost either partially or completely if they want to keep sales going.
Demand to rise for RTM
with completion certificates
Another obvious trend that will emerge is that
ready-to-move-in projects with completion certificates will draw significant
demand. Developers with such stock will not miss the opportunity to cash in on
it.
We will also see developers step up their efforts to obtain
completion certificates so that they can declare their projects as free of GST.
This would be a notable change from the previous times when developers with
ready-to-move-in units were in no real hurry to obtain completion certificates.
Affordable housing will also see a massive boost because
such projects attract only 8% GST as compared to the other segments which
attract 12%. More than ever before, affordable housing - already the king of the
current market, will become the strongest contender in the rapidly-changing
regulatory regime.
