GST Council approves transition plan for 5% rate for under-construction flats, and 1% for affordable housing

The GST Council has reduced the GST rates for under-construction flats and affordable housing to five per cent and one per cent, respectively and also increased the carpet area of flats under affordable housing

Update on March 19, 2019: The GST Council, on March 19, 2019, approved a transition plan for the implementation of the new tax structure for housing units, revenue secretary AB Pandey said. As per the plan, builders will be allowed to choose between the old tax rates and the new ones for under-construction residential projects, to help resolve input tax credit (ITC) issues.

As per the decision taken by the GST Council, the developers of residential projects which are incomplete as on March 31, 2019, will have the option either to choose the old structure with ITC or to shift to the new 5% and 1% rates, without ITC. Builders will get a one-time option to continue paying tax at the old rates (effective rate of 8% or 12% with ITC) on ongoing projects (buildings where construction and actual booking have both started before April 1, 2019, but which will not be completed by March 31, 2019), Pandey explained. The new tax rate of 1% for affordable houses and 5% for others, without ITC, will apply on new projects.

The meeting deliberated on the transition provision and related issues for the implementation of lower GST rates for the real estate sector. The Council had, in its last meeting on February 24, 2019, slashed tax rates for under-construction flats in the affordable category to 1%. The GST rate on other categories was reduced to 5%, effective April 1, 2019. Pandey said the GST rates for new projects will be mandatory from April 1, 2019.

 

Source :

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How the GST rate reduction will impact property prices

SINCE DEVELOPERS WILL NOT BE ABLE TO CLAIM INPUT TAX CREDIT, WILL COST OF PROPERTY COME DOWN?

Once accepted and included in the official gazette, GST would be charged at an effective rate of 5% on the total value of non-affordable under-construction properties (property costing ₹45 lakh and above), which would be 7 percentage points less than the earlier effective rate of 12%. However, in case of low-cost or affordable housing, GST would be charged at an effective rate of 1%, down from the current 8%. Here is how the new GST rate will impact property prices.

Will the Price of Property come down?

Though the GST Council has recommended a rate cut, it also restrained developers from claiming ITC on various raw materials like cement, steel etc. As explained, developers used to claim ITC, bringing down their cost. But with developers not being able to claim the ITC, will the overall cost change?

“Developers will be burdened with GST payments to vendors, suppliers, agencies and contractors and this will land up increasing the cost further amid the already shrinking margin in business due to dynamic policies implemented by government," said Parth Mehta, managing director, Paradigm Realty, a real estate developer.

Prices of the apartment will start looking northwards if developers lose ITC, said Om Ahuja, chief operating officer, residential business, K Raheja Corp., a real estate developer.

Kapil Sharma, partner, Lakshmikumaran & Sridharan Attorneys agreed. “For buyers, prices may not actually reduce (after GST reduction) as the developers would not take hit of the tax cost which is incurred on the goods/services and such cost would form part of the price of the unit," he said.

However, some experts differ, and believe that given the current market situation, it would be difficult for developers to pass on the ITC burden to the home buyers. “The withdrawal of ITC could impact the profitability of real estate developers. Developers will need a price hike of 2-4% to maintain margins, which seems difficult in the current market scenario," said Rahul Prithiani, director, CRISIL Research.

In general, it is expected that cost of buying a house will come down, but not to the same extent by which GST rates have been reduced.

 

Source URL:

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From April, home loans to be decided by markets

The RBI said on Wednesday that from April 2019, it will be mandatory for banks to link all floating rate loans, which are extended to individuals and small business, to an external benchmark.

MUMBAI: Borrowers can now expect more fairplay when it comes to pricing of home loans which will now be decided by markets rather than banks.

The RBI said on Wednesday that from April 2019, it will be mandatory for banks to link all floating rate loans, which are extended to individuals and small business, to an external benchmark.

This benchmark can be the RBI’s repo rate, yield on the 91-day or 181-day treasury bill, or any other yardstick produced by the Financial Benchmarks of India.

“We have been moving towards enhancing transparency on loans. As part of this, we moved from base rate to marginal cost of lending rate. In furtherance of this objective, we are making it mandatory for banks to link personal and SME loans after April 2019,” RBI deputy governor NS Vishwanathan, said.

The actual cost of loan will be at a spread over the benchmark and the spread will be constant throughout the tenure of the loan unless there is a change in the credit worthiness of the borrower.

Citibank is the only lender in India that uses external benchmark for home loans. In March this year, the bank had introduced a home loan scheme where the rate of interest was linked to the government’s 91-day treasury bill. “We believe the use of external benchmarks for floating-rate home loans provides transparency to the end consumer. We have seen a favorable response since its launch in March 2018, with 95% of all new bookings opting for our three-month T-bill rate-linked home loan product,” Rohit Ranjan, head of secured lending, Citibank India, said.

Besides improved transparency, an external benchmark is expected to result in improved transmission of rates. The effectiveness of the RBI’s policy in stimulating demand or curbing it will work only if banks pass on its rate actions.

It has been seen in the past that banks try to protect their margins by not bringing down rates in line with the RBI’s rate cuts or during growth phases they refuse to pass on rate hikes, resulting in loans continuing to grow despite the apex bank’s efforts to curb demand. With an external benchmark, banks will have no choice.

The move to have an external benchmark was first proposed by a committee headed by Janak Raj, principal adviser at RBI’s monetary policy department.

For several years now, the RBI has been trying to address the issue of floating rate loans, which move up easily when market rates rise but tend to be sticky when interest rates come down. Banks have been managing to vary rates for new borrowers by varying the spread at which they extend loan.

To address this RBI asked banks to replace PLR with the marginal cost of lending rate (MCLR). MCLR, which was to be based on the incremental cost of funds, came with its own problems of having multiple rates.

Source: https://realty.economictimes.indiatimes.com/news/industry/from-april-home-loans-to-be-decided-by-markets/66969391

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Home sales surge 40% in 9 months to Sept on Government policy reforms: JLL data

Housing NSE -0.91 % sales across top cities in the country is seeing some green shoots of recovery with both sales and new launches rising despite liquidity issues and low buyer sentiment with Hyderabad and Kolkata leading the revival.

According to JLLNSE 0.00 % data for the nine-month period ended September 30 sales in residential segment have risen 40% on year.

Business environment for real estate has seen rapid change with series of reforms in the form of demonetisation, implementation of Real Estate (Regulation & Development) Act, 2016, the Goods & Services Tax (GST), Benami Properties (Prevention) Act and the Insolvency & Bankruptcy Code.

“While the implementation of GST and RERA led to some initial challenges for developers, most of the issues have been addressed and the industry as a whole is aligned. Going by the data for sales and new launches in the January to September period, home buyers are no longer delaying or postponing decisions on buying homes,” said Ramesh Nair, country head, JLL India.

Hyderabad and Kolkata were the standout performers with growth rates of 277% and 230% respectively. The relatively small residential markets in the two cities also provided a low base effect for the jump in bookings. These were followed by Chennai (77%), NCR (53%), Pune (19%), and Bangalore (12%), the report said.

“There is definitely an increase in confidence in the market amidst positive signs of recovery. This, coupled with stable pricing, augurs well for the industry and demonstrates the return of buyers’ confidence in the market, which has in turn prompted developers to launch new project,” Nair said.

In terms of launches, Kolkata led the way with an astounding 325% on-year growth followed by Chennai (289%) and NCR (152%) rounding off the top three. While Bengaluru and Hyderabad recorded growth rates of 101% and 82% respectively, in Pune had launches was pegged at a niggardly 3% growth.

https://economictimes.indiatimes.com/industry/services/property-/-cstruction/home-sales-surge-40-in-9-months-to-sept-on-government-policy-reforms-jll-data/articleshow/66780367.cms

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