Impact of GST on REAL ESTATE – Positive or Negative?
Posted: 11th , August 2016

There has been a definite positive vibe in the market from the time GST (Goods and Services Tax)
has been passed in the upper and the lower house of the Parliament of India. The mood has been upbeat among the investors and the markets have been showing upward trends. These are very positive signs as far as investors are concerned. According to our Prime Minister GST will be helpful in killing tax terrorism.

But the common man is still apprehensive. The common man still does not know whether GST Bill is going to bring a definitive change in their lives or not. The three main factors which are directed to the lives or a common man are food shelter and clothing. His main concern is whether the cost of these three commodities will go down or not? If answered in a nutshell then yes it will go down on a long term. Short term effect is still a speculation and will be known only when the GST rate is finalized.

The common man’s dream of a shelter of his own is a dream of a life time. The real estate market has gone through a slumber for last few years due to high interest rates and other financial factors. Consumers have been vary of buying a house as they are not sure whether they will be able to pay the monthly EMI due to high interest rates. Therefore many builders have suffered huge losses.

Real Estate Industry’s contribution to India’s GDP is around 7.8%, and it generates second largest employment opportunity after IT Industry.

With the changes in the structure the speculation is that the tax will be lower than the existing cumulative taxes. But if the final rate is equal or higher than the tax % that is present in the current scenario then it will be a dampener and will burst the bubble of hype that has been created. That is because it will increase the final cost of purchasing a flat or a house which is under construction.

The picture looks murky for now but in the long term it should be beneficial for both the buyer and the seller and the real estate industry should be seeing an upward trend. That is because of rationalization in tax related compliance and expected gains in sectors like cement, steel, banking etc. which are directly related to Real Estate industry.
But how will all this affect the so called common man who is not able to realize his dream of owning a house? It is very simple equation, as the increase in cost was passed on to the consumers by the constructors in the same the benefits will also be passed on to the consumers. But how is that going to happen?

With the rationalization of related sectors the constructors will not need to pay extra for these commodities resulting in lower construction cost which means the cost of the house will definitely go down when it comes to the end customer.

Having said that we all need to wait till the rates have been fixed and till then all these points are mere speculations.