IMPACT OF GST ON REAL ESTATE SECTOR

Not only has the Goods and Services Tax simplified tax structure and brought transparency and uniformity into the system, it has also led to reduction of prices in affordable and mid-income housing segments in most parts of the country

Source: TOI dated 23/6/2018

The biggest tax reforms since Independence was introduced in the country on July 1, 2017 with the enforcement of Goods and Services Tax (GST).

A dipstick survey that asked developers whether there was any upward revision in prices, had the developers return an unanimously verdict – none!

In the luxury segment, though, prices have shown upward revision due to the new tax regime, in certain markets like the Delhi NCR.

But, as the market is not permitting developers to increase prices after tax, developers are forced to absorb the extra cost brought about by the increase in tax liability.

Price increase in luxury segment is mainly owing to rise in the net tax rates under the new regime. The incidence of service tax and VAT before the GST regime was introduced was around 5.5%. After GST came into force, taxes were revised to 12% of the purchase price of the house.

However, there is an element of input tax credit which is equal to the taxes paid on inputs like cement, steel, and other items including work contracts. But the input tax credit is not sufficient to offset the increased tax liability.

In states like Maharashtra and Karnataka, where the total tax incidence – service tax and VAT – prior to GST was already upward of 10%, GST at 12%, along with input tax

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credit, decreases the net tax liability!

In the NCR markets, too, in midsegment housing, the input tax credit is sufficient to offset the tax liability due to increase in the tax rates.

For projects under construction, the earlier laws of VAT and service tax will apply for invoices or demand notes raised prior to the enforcement of GST (July 1, 2017), while for invoices raised after that, the new GST law will apply, a report said.

At the same time, GST requires businesses to mandatorily pass on the benefit derived from any reduction in the rate of tax or benefit from input tax credit to customers.

The report says that in the real estate sector, the industry is groping in the dark to determine the actual benefit owing to GST, as there is little clarity on how the benefit, if any, must be computed.

The government has been very aggressive, especially with the real estate sector, to investigate businesses for non-compliance with the anti profiteering provisions.

Against this backdrop, businesses should take appropriate steps to evaluate the quantum of benefit to be passed on and the methodology for passing on such benefit, if any, to customers, the report said.

To avoid GST, ready to move in at Jaypee Greens Wish Town Noida.

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HOUSING FOR ALL: RBI, Centre close ranks!

The Union government and the Reserve Bank of India are announcing measures not only to increase the scope of subsidies for a larger customer base, but also to reduce interest rate on home loans, so that affordability factor improves for homebuyers, especially the middle and lower-income group.

Source :  Times of india (property) Dated 16/06/2018

The government’s decision to increase cap on carpet area criteria to qualify for interest subsidies under Prime Minister Awas Yojna (PMAY) will increase sale of largersized apartments, as more buyers can now avail the subsidies.

In line with the revised norms, MIG-I category homebuyers with household income between Rs 6 lakh and Rs 12 lakh are now eligible for subsidy for housing units of up to 160 sq metre in carpet area, up from the earlier size of 120 sq metre.

Similarly, MIG-II category homebuyers with household income between Rs 12 lakh and Rs 18 lakh are eligible for subsidy for housing units of up to 200 sq metre in carpet area, up from the earlier size of 150 sq metre.

Earlier this week, the RBI also revised the definition of Priority Sector Lending (PSL) by increasing its ambit to cover more buyers. Now, loans taken to buy a house costing up to Rs 45 lakh in metropolitan cities, and up to Rs 30 lakh in other centres, will come under priority sector lending. This will increase the number of units which qualify for priority sector loans.

Apart from this, the RBI revised housing loan limits under PSL from the existing Rs 28 lakh to Rs 35 lakh in metropolitan centres with population of 10 lakhs and above, and from existing Rs 20 lakh to Rs 25 lakh in other centres, in its bimonthly monetary policy statement, provided the overall cost of the units in the metropolitan centre and at other centres do not exceed Rs 45 lakh and Rs 30 lakh, respectively.

An analysis by a leading property portal, Magicbricks, shows that Greater Noida is the biggest beneficiary in the MIG category after the revision in the PSL norms, as the number of available units for sale in the region have gone up from 31% to 55% of the total available stock. Ghaziabad, where the stocks increased to 40% from 21%, and Noida, from 16% to 29%, were second and third on the list.

Banks are supposed to lend 40% of their total outstanding loan funds

to priority sectors, where default rates are high at around 8%. If the home loan segment above Rs 10 lakh is also included in the priority sector category, where default rates are very low, at around 2%, many banks would like to meet the criteria of PSL by giving home loans in the ticket size between Rs 10 lakh and Rs 35 lakh.

Suggested projects in affordable price is Jaypee Greens Kosmos and Klassic.

As the RBI increased the cap on the cost of houses to Rs 45 lakh, up from Rs 35 lakh, in metro cities to qualify for PSL, many units will now be covered under this.

Therefore, the size of this segment will be large enough for big banks to focus on this category to meet their PSL criteria.

This will increase competition and bankers feel that interest rates in this category will fall.

An analysis by Magicbricks on data for million plus listed properties for sale and resale on its platform shows that as a direct consequence of RBI’s revision of the overall cost of the dwelling unit in urban areas, a significant portion of homebuyers in both Lower-income Group (LIG) and Middle-income Group (MIG) in the Delhi NCR cities of Greater Noida, Ghaziabad, and Noida, will be benefited.

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