GST cut on cement, bricks lifts real estate mood, but homebuyers unlikely to gain

While developers see the move as positive, analysts and industry bodies pointed out that the benefit for end-users would be negligible. With developers barred from availing GST input tax credits (ITC) on residential projects, the reduction will mostly shore up their margins rather than reduce apartment prices

MUMBAI: The real estate sector has welcomed the Goods and Services Tax (GST) Council’s decision to slash tax rates on key construction materials, but industry experts say the relief will not translate into lower home prices.

Mumbai, India - Sept. 5, 2023: Arial view of Infrastructural development at Sath Raasta, Mahalaxmi, in Mumbai, India, on Tuesday, September 5, 2023. (Photo by Anshuman Poyrekar/ Hindustan Times) (Hindustan Times)

At its meeting on Wednesday, the Council reduced GST on cement from 28% to 18% and on sand-lime bricks and stone inlay work from 12% to 5%. Cement, in particular, forms one of the largest cost components in housing projects.

While developers see the move as positive, analysts and industry bodies pointed out that the benefit for end-users would be negligible. With developers barred from availing GST input tax credits (ITC) on residential projects, the reduction will mostly shore up their margins rather than reduce apartment prices.

“The direct impact on overall construction costs will be marginal since ITC remains unavailable for residential projects. We also await clarity on affordable housing incentives, which are crucial for driving first-time homeownership in Mumbai Metropolitan Region (MMR),” said Rushi Mehta, secretary, CREDAI-MCHI.

According to Dr Samantak Das, chief economist and head of research (India) at JLL, the cost benefit would range between 1% and 1.5%, depending on the stage and nature of the project. “Prima facie, it may appear that there may not be a drastic slash in home prices,” he said, adding that the cascading effect of cement costs will vary across project categories.

Developers privately admit that the savings will likely be absorbed to meet rising operational expenses. “With sales plateauing and even dipping in recent months, the 2%-3% benefit will go towards maintaining working capital and overheads rather than cutting prices,” a Mumbai-based builder told Hindustan Times.

The question of why homebuyers never see such benefits was also raised publicly by chief minister Devendra Fadnavis at the ‘Change of Guard Ceremony 2025’ of CREDAI-MCHI in Mumbai on August 14. Addressing the new president Sukhraj Nahar and other developers, Fadnavis said: “In the last 10 years, we have done all the things you asked to make housing affordable. After those decisions, home prices have only gone up, never down. You asked for lower premiums, it was done. We built the Coastal Road and Atal Setu, hoping prices would drop, but instead they skyrocketed.”