Developers in India hope for property boost from goods and services tax

India’s long-awaited goods and services tax (GST) could boost investment into the property sector and encourage non-resident Indians to buy homes in the market, developers say.

GST, a uniform tax regime that is expected to replace the current convoluted system of differing taxes across 29 states, is expected to be rolled out on July 1. It is considered to be the biggest tax reform in India in decades.

The rate unveiled for the property sector is 12 per cent for under-construction property.

“GST will likely boost foreign investment and benefit the NRI [non-resident Indian] community for investment in real estate,” said Sukhraj Nahar, the chairman and managing director of Nahar Group, a developer based in Mumbai. He said a simpler tax regime is conducive to investments. “The existing channels include issues of multiple taxation, amounting to indirect taxes and no uniformity,” Mr Nahar said.

There are 16 million Indians living outside India. More than 40 per cent of NRIs surveyed in the UAE said that property in India was their preferred investment, according to a survey by Sumansa Exhibitions.

Home sales in India have been hampered in recent years by high interest rates and more recently the demonetisation move. But the findings of the latest sentiment index by property consultancy Knight Frank, along with industry bodies Ficci and Naredco, show that 64 per cent of industry leaders surveyed believe that residential sales will improve in the coming six months.

There are mixed opinions on the potential impact of GST. Some developers insist that home prices might rise slightly and others say they will come down or stay the same.

“With the rates in place now, the implementation of GST to our business is expected to bring down the project cost for the developer,” said Ashish R Puravankara, the managing director of Puravankara, a builder based in Bangalore. “Specifically, the impact of taxes on construction materials, cement and steel will come down considerably for developers.”

He said the new tax regime will create “a level playing field” for builders across the country. “There are multiple benefits for both developers and home buyers with the GST implementation. A single consolidated tax system brings more clarity, transparency and avoids double taxation, which is relevant in the real estate sector where developers and users end up paying multiple taxes and duties.”

Developers can benefit from being able to earn tax credits for their costs under GST, which could allow them to reduce home prices.

“Earlier, builders would pay excise on fittings, cement and steel without getting input credit on the same,” said Ashok Mohanani, the vice president of the National Real Estate Development Council for the western region. “Under the GST regime they will experience the benefit of procuring credit.”

Others say that GST will boost the overall attractiveness of the market.

“In respect to the real estate industry, which is currently plagued with a myriad of indirect tax issues both at the centre and state level, GST clears the air, bringing in a more comprehensive and uniform tax structure that will ensure greater transparency in the sector,” said Surendra Hiranandani, the chairman and managing director of House of Hiranandani, a luxury property developer.

He said GST “will have a multiplier effect on all the sectors of the economy and further make India an attractive place for investments”.

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