MC Explains: Tenants in a spot as rentals for PGs, co-living set to soar in Bengaluru

The central government is planning to impose 12 percent GST on PG and student housing for rates less than Rs 1,000 per night. For others, the tax will be 18 percent.

With the Bengaluru bench of the Authority for Advance Ruling stating that rents paid for paying guest (PG) and co-living accommodations are not exempt from the goods and services tax (GST), the rentals in Bengaluru are set to climb further.

Rentals for PGs in Bengaluru have already increased multifold, with some areas witnessing close to a 20-30 percent increase.

Experts suggest that with PG accommodation owners falling in the GST net, the largely unorganised sector is set to witness major consolidation.

What is the advance ruling?

Last month, Sri Sai Luxurious LLP, a PG operator in Bengaluru, sought an advance ruling on whether the PG or hostel rents qualify for a GST exemption.

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However, the bench observed that "residential dwelling" is not defined by the Central GST Act, 2017, or the notifications. It noted that residential accommodation does not include a hotel, guest house or any place of temporary stay.

"Thus paying guest accommodation/hostel services cannot be termed as a residential dwelling for the GST exemption," the ruling said.

The bench also held that the GST on reverse charge will be applicable on the rent to be paid to the owners, and PG operators or companies will have to obtain a GST registration.

Are PG and co-living prices set to rise again?

The cost for tenants in co-living and PG accommodation will certainly increase as the extra burden of GST will be passed on to them, Saurabh Garg, co-founder and chief business officer of online property services firm NoBroker believes.

Subhankar Mitra, an independent consultant, explained, "PG and co-living operators will start collecting the money to be paid in GST from individual tenants. Thus, the burden will fall on them."

The central government is planning to impose 12 percent GST on PG and student housing for rates less than Rs 1,000 per night. For others, the tax will be 18 percent.

The GST levy, experts say, will spell the end of affordable co-living and PG accommodation. With rentals for apartments soaring in Bengaluru, several tenants have opted for co-living in the city, which is at least 20 percent cheaper for a single bed or a room.

PG rentals already soaring

Simran Chakraborty, an edtech professional in Bengaluru, is currently looking for an affordable PG accommodation after her current PG owner decided to hike the rent suddenly.

Chakraborty, who pays Rs 13,000 for a twin-bed room, said, "The owner is randomly bringing new tenants to see my room who are ready to pay more—at least Rs 16,000 or more.

However, for her, finding an affordable PG or co-living space today is a Herculean task. Rents across PGs in Bengaluru have shot up by 20-30 percent, with several companies having two months of waiting time for a bed to be available.

Kiran Kumar, a realtor at local real estate brokerage Hanu Reddy Realty, said that in prime areas like Indiranagar and Koramangala, rent for a single-bed accommodation has shot up to Rs 15,000 from Rs 10,000 about six months ago. In other places close to the central business district, a single room costs about Rs 22,000 now compared with Rs 11,000-12,000 earlier.

"Most tenants choose co-living for the services it offers, including food, laundry and networking facilities. For apartment rentals in Bengaluru, the prices have shot up by 30 percent in most places like Indiranagar, Koramangala, HSR Layout and Whitefield, making most of them unaffordable. Now, tenants will have no option but choose the more expensive PGs," a broker said.

Sector to witness consolidation

A PG owner in Bengaluru who chose to remain anonymous said that the sector is still unorganised and several operators are struggling to turn a profit.

"We have approached the state governments several times to bring a set of guidelines for our respite. And now with GST charges, we will have no choice but either raise costs or pay from our pockets. Some owners will go down in losses too," the owner added.

Experts say that in the co-living sector, several large operators have already started consolidating, while several smaller players have closed down.

"We have already seen consolidation in sectors that came under the ambit of GST or any kind of government regulation, especially after Covid. For PG or the co-living sector, we can expect a similar consolidation in the coming months," Mitra added.