Cheaper Homes Ahead? New GST Rules Could Cut Property Prices
Cheaper Homes Ahead? New GST Rules Could Cut Property Prices
A key meeting of the Group of Ministers (GoM) on GST rate rationalization on Thursday, August 22 reportedly concluded with states endorsing the Centre’s proposal to simplify the indirect tax system by reducing the number of slabs to two—5% and 18%. The six-member panel, chaired by Bihar Deputy Chief Minister Samrat Choudhary, also reportedly agreed that a higher 40% levy would remain on select sin goods, with luxury cars added to that list.
Officials said the new framework could be rolled out by Diwali. The move is expected to ease compliance but reportedly raises questions about its impact on critical sectors such as real estate.
Real Estate in Focus
Currently, real estate projects are affected by widely varying GST rates on construction inputs, 28% on cement and paint and 18% on steel, tiles, and sanitaryware, reportedly. This uneven structure reportedly increases project costs and housing prices. Analysts reportedly say that consolidating these rates could reduce expenses for developers.
According to an Anarock analysis, affordable housing, currently taxed at just 1%, would reportedly see little immediate change. However, if input tax credits (ITC) are restored, home prices could reportedly fall by 2–4%. In the mid-segment, a reduction from 5% to 3% could reportedly bring down costs by 2–3%.
Abhishek Raj, Founder & CEO of Jenika Ventures, reportedly said, “The 2019 cut in residential GST from 12% with ITC to 5% without ITC boosted buyer confidence in under-construction projects. But without ITC, long-term affordability in a middle-class-dominated market remains difficult.”
Rising Costs and Squeezed Margins
Construction costs have reportedly risen sharply in recent years. Between 2019 and 2024, costs reportedly increased nearly 40%, with a 27.3% surge in just three years. Grade A project costs in tier-1 cities reportedly rose from Rs 2,200 per sq. ft in 2021 to Rs 2,800 in 2024. In this environment, tax relief on core materials like cement and steel could reportedly provide some relief.
Pawan Sharma, Managing Director of TRG Group, reportedly said, “Simpler tax rates have encouraged more homeownership, especially in affordable housing. But the withdrawal of ITC burdens project budgets, particularly with materials like cement and steel. Over time, these costs inevitably reach buyers.” Sharma reportedly added that reinstating partial ITC could strike the balance between buyer savings and developer viability.
Luxury Housing Concerns
The simplified system may not equally benefit all housing segments. Luxury housing projects, which rely heavily on premium materials, reportedly risk seeing higher costs if such inputs are moved into the proposed 40% slab.
While the two-slab GST system reportedly promises clarity and easier compliance, the absence of ITC remains a concern for developers. Restoring ITC could reportedly increase the benefits of reduced rates, especially in mid-income housing. For luxury projects, however, the 40% slab may complicate pricing strategies in an already competitive market.
With the festive season approaching, industry leaders, buyers, and policymakers will reportedly watch closely. The GST overhaul could reportedly reshape the cost of construction and affect India’s housing market, from affordable homes to luxury developments.
