Will GST Make Homes Affordable For Mumbaikars?

The GST 2.0 reform-measures announced recently are expected to motivate consumer spending. From cars to food, everything is expected to turn a tad affordable. FMCG (Fast Moving Consumer Goods) giants such as HUL (Hindustan Unilever) recently announced effective price of several commodities in line with the GST revision. But how about real estate? Is there any relief on cards?

India's festive season generally witnesses a spurt in volumes of goods ranging from motorcycles to cars to even homes. Prime Minister Narendra Modi hence referred to them as 'GST Bachat Utsav' in his address to the nation on Sunday. Particularly from the perspective of real estate, construction materials may turn cheaper. That, since a lower GST tax rate would be applied on construction materials. Several materials have been brought down from 18 percent to the 5 percent slab.

HOW MUCH AFFORDABLE WILL IT GET?

With the GST slab on construction material revised to 5 percent, the overall impact is likely to be in the range of 1 to 1.5 percent. Although in percentage terms it may not look like a big number; but in reality it could be a huge difference. For example, a 1 to 1.5 percent revision while buying a property valued at Rs 1 crore in itself would be about Rs 1 to 1.5 lakhs.

HOW IS GST APPLIED ON REALTY?

While buying homes, a Goods and Services Tax is levied based on the classification of the property. Here is a simple list of the rates levied according to the property:

- Affordable home: 5 percent

- GST on Land & Ready To Move Properties: Exempted

- GST on Under-Construction: 12 percent

- GST on Housing Society Maintenance Fees: 18 percent if the contribution is more than Rs 7,500 per month.

GST could also be levied on processing fees charged by banks on banking products such as loans extended to borrowers, the processing fees, and EMIs. It is important to note that there may not be a GST levied on a loan for purchase of a ready-to-move home; however if an Occupation certificate is unavailable, one may have to bear 12 percent GST on top of the loan. GST on loan processing fees ranges from 0.25 percent to 1 percent of the loan value.

WHAT WILL BE THE IMPACT?

The overall impact could be huge considering the volume of real estate apartments sold and built in Mumbai. Mumbai's real estate market contributed Rs 1,101 crores in stamp-duty collection for the state. With GST, there is hence an anticipation that luxury homes and affordable home sales pick-up.