Rakesh Reddy’s Interview with Property House Magazine

In an interview with Property House Magazine, Rakesh Reddy, Director, Aparna Constructions And Estates Pvt. Ltd. answers a few questions on GST and its likely impact on the real estate industry.

Q. Will resale properties become costlier under the GST?

A. Well, prima facie, it seems there would be no or very little impact of the Goods and Services Tax (GST) on resale properties simply because home-buyers are not liable to pay any indirect tax for the purchase of already completed houses. However, we will have to wait and see how it plays out in the medium term as the housing inventory has hit a 10-qtr low now post RERA and demonetization.

Q. Is it true that under-construction properties will be costlier compared to ready-to-move-in properties?

A. GST allows developers to avail full input set-off credit for under- construction projects, but not for ready-to-move-in properties. Hence, developers will have to bear the tax burden for such ready-to-move-in projects. And that could essentially mean no cost relief for homebuyers of ready-to-move-in flats. As far as under-construction properties are concerned, the expected marginal decline in prices only if builders avail of input tax credits and pass on the benefits to the buyers would be offset by the fall in new project launches in the wake of RERA and already dwindling inventory. It is also worth noting here that property prices in the country have been stabilizing over the last few years while the demand has still been, more or les,stable. At the same time, any clarity on certain grey areas such as the abatement available for the land cost will go a long way in determining the GST impact for real estate sector.

Q. Will the GST impact the stamp duty on buying a property? What about registration charges, maintenance charges, etc.?

A. No. Of all the taxes applicable for real estate in the previous tax regime, GST will only subsume VAT levied by State governments and Service Tax by the Central government. This would essentially mean that stamp duty & registration charges will continue to be applicable and would vary from State to State. As far as maintenance charges are concerned, they will go up to the extent of the increase in tax, which earlier was at 1 5.5% and will now go up to 18% post-GST

Q. What are the problems that developers are facing to register projects where a regulator has been put in place?

A. Every landmark regulation brings in it a set of challenges along with the changes it promises to deliver. To the credit of some of the state governments, they have been proactive in resolving some of the issues with the registration. I also believe that the transition to the new regulation has been largely smooth for large players. However, for smaller developers, complying with new procedures and furnishing an unusually vast amount of information regarding their projects have, nonetheless, been challenging. That said, I have no doubt with RERA infusing the much-needed transparency and addressing key issues like delays and quality of construction, real estate’s future in India is all set on a long-term growth track