Real estate sales have slowed down on account of uncertainty surrounding the Goods and Services Tax (GST) and some homebuyers may postpone their purchase decision until more clarity emerges. In some cases, homebuyers may even decide to wait for projects to get completed to avoid paying GST, say real estate experts.
“There is substantial confusion over how much input tax credit will be passed on to homebuyers once GST comes into effect. It is because of this that many homebuyers have decided to defer their decision to purchase a house and sales are relatively slow. But this will only continue for the short term,” says a real estate developer not wanting to be named.
There is a risk of near-term sales slowdown post-GST, says an analysis titled Real Estate: Decoding the GST Impact by Edelweiss.
“In the case of ongoing projects nearing completion, we expect buyers to postpone purchase decisions till project completion so as to be exempt from GST (around 6 percent saving), leading to a meaningful slowdown in new sales. In other ongoing projects, new sales are likely to dip in the near term still clarity emerges on GST implementation, post which sales should normalise,” it says.
But the question here is how long will buyers wait? It will all depend on the requirement of the buyer. Also, builders may not offer the same price once the project is completed - buyers may not get the same floor or an apartment next to the lift etc. So, purchase decision will have to depend on a series of factors and not just GST, say experts.
“In the future, we may see more homebuyers deciding to opt for ready-to-move-in apartments and not pay GST. We may also see a situation wherein a builder will be more keen to sell an under construction unit because he will receive input tax credit on it,” says M S Mani, senior director, Deloitte Haskins & Sells LLP.
So, what should homebuyers do? They should ask themselves whether they require the house for self-use or for investment purpose. Second, they must analyse the price being offered to them by the developer post GST and the cost of the completed unit three months down the line, he says.
Not all developers will be willing to reduce the cost of the apartment after GST is implemented. It will all depend on the amount of input tax credit received by the developer and the amount he is willing to pass on to the buyer, he says.
“Also, out of the 11 lakh unsold inventory across the country (that includes both under construction and unsold completed stock), only about 5 percent, that is, around 5,000 to 10,000 may get completed in the next three to six months,” says Pankaj Kapoor of Liases Foras.
With only three days left for GST to kick in, it’s left to homebuyers to take a call. “It makes sense for homebuyers to wait for a few months if there is a likelihood of some projects getting an occupation certificate as they can then escape the GST net. It will be a win-win situation for buyers as chances of price escalation in the next few months to the extent of 12 percent seem remote due to the slow moving real estate market,” says Abhay Upadhyay, national convenor, Fight For RERA.