Imposing GST on FSI charges could increase housing prices by 10%, adversely impact demand: Developers

Imposing GST on FSI charges could increase housing prices by 10% and adversely impact demand, say developers

Real estate developers across the country have urged the central government to reconsider the proposal of bringing FSI (floor space index) and additional FSI charges within the scope of Goods and Services Tax (GST), as the move may trigger an increase in property prices.

The Confederation of Real Estate Developers Associations of India (CREDAI), in a letter addressed to the Finance Minister Nirmala Sitharaman, on December 20 urged the Centre to reconsider the proposition of charging 18 percent GST on FSI/ Additional FSI charges paid to local authorities for real estate projects.

According to CREDAI, this move would have a substantial incremental impact on project costs, further pushing housing prices up by approximately 10 percent across various parts of the country.

Imposing GST on these charges would also affect not just housing demand but also supply as it would raise significant economic and viability concerns.

The move comes after reports that the GST Council is expected to decide on implementing 18 percent GST on FSI and additional FSI charges. The decision is likely to be taken in the upcoming GST Council meeting on December 21 in Jaisalmer, Rajasthan.

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FSI, also known as floor area ratio (FAR), determines the maximum permitted floor area that can be developed on a given plot of land and controls the construction density in that area.

CREDAI further claimed that retrospective clarification of GST on such payments would burden developers with an “enormous amount” of unforeseen liabilities, disrupting the financial and cost planning of on-going and completed projects.

“The resulting financial pressures could potentially lead to stalled developments and jeopardize the financial security of homebuyers invested in these projects. Even prospective application would substantially elevate construction costs, imposing additional financial burdens on end consumers and deteriorate housing affordability issues, hindering the collective mission towards ‘Housing for All’,” CREDAI said in a statement on December 20.

Boman Irani, President, CREDAI said that FSI/ Additional FSI charges constitute a significant part of the project cost, and the proposal to impose 18 percent GST on such charges could prove to be counterproductive and act as a deterrent to housing supply and demand, owing to additional financial obligations and increasing housing prices as a direct consequence.

“We strongly request and recommend to the government to keep the FSI charges exempt from GST. Any retrospective or prospective charges could destabilize the financial foundations of numerous projects, hampering the ability to facilitate timely possession by developers,” Irani said.

Such additional charges will make affordable housing projects economically unviable, potentially pushing the prices upwards by 7-10 percent and directly impacting the purchasing power of the middle-class segment.

Reacting to the development, Niranjan Hiranandani, Chairman, National Real Estate Development Council (NAREDCO), echoed similar concerns and said that the contemplation to impose an 18 percent GST on FSI and additional FSI charges has alarmed the industry.

“Already burdened with high development premiums, soaring raw material prices, expensive skilled labour, elevated construction technology costs, and inefficient logistics, this additional tax would threaten project viability and disrupt affordable housing supplies. The imposition of this tax will significantly impact the affordability index and overall economic viability,” he said.

Government's 'Housing for All' mission is unachievable with such tax implications that jeopardize the growth of a sector integral to job creation and the thriving of over 300 ancillary industries, he said.