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Property prices set to drop post-July 1

Deccan Herald |

05 June 2017

Property prices are likely to drop 2-3% post-implementation of Goods and Services Tax (GST) structure, provided realtors pass on the benefit of input credit to home buyers.

Although real estate has been taxed at a fixed slab of 12%, input credits of various raw materials used in the construction of houses are taxed at 28% and the input credits from the same are expected to be passed on to the consumer, industry experts told DH.

Revenue Secretary Hasmukh Adhia also made it clear at a recent Townhall meeting in Bengaluru that if input credits in real estate sector are passed on by the realtors to the home buyers, the property prices would see a fall.

Many industry players echoed Adhia’s assertion. According to Om Ahuja, Chief Executive Officer — Residential at Brigade Enterprises, input credit is “the benefit that consumer is going to take home”. He is also hopeful that tracking input credits in case of inter-city purchases is going to be resolved by the advent of GST.

He expects that if all realtors pass on the benefits to consumers, the prices will fall between 2-3%.

However, Ashutosh Limaye, Head of Research and REIS at real-estate advisory Jones Lang LaSalle (JLL), expects that there won’t be too much of a difference because of GST. “Today, if somebody is buying an under construction property, he is ending up paying the same — between 10% and 12%. That is getting replaced by a flat rate of 12%, which will not make much of a difference,” he said.

Limaye also believes that input credits will get passed on to the consumers ultimately, as the market is not very conducive for sales.

Sanjay Dutt, India CEO at Ascendas-Singbridge, seconded that impact of input credits under GST will be positive on the end consumer.

Though experts believe that tax impact on property prices will depend on gamut of factors. “The overall tax impact for a developer will depend on multiple factors like the percentage of inventory sold under construction, the way their construction contracts are made, their product mix between commercial and residential,” said Nidhi Seksaria, Leader - Real Estate & Construction at BDO India.

The net savings will determine how much of it they are able to pass on to customers as price reduction, she added.