Shares of real estate developers surged in the early morning trade on the National Stock Exchange (NSE) after the Goods and Services Tax (GST) Council at its meeting on Sunday reduced the GST rate on under-construction houses.
For flats priced more than Rs 45 lakh, the new GST rate applicable from April 1, 2019, stands at 5 per cent, against 12 per cent, earlier.
The Council also cut GST rates on affordable housing to 1 per cent, from the current 8 per cent — less than what the ministerial panel on real estate had suggested. In both cases, the builders will not be eligible to claim input tax credit in the new structure. READ MORE
"This move will give the necessary fillip to the demand in the under-construction segment, which has been suffering from low sales levels for last many quarters. The elimination of input credit tax benefit may hit profitability for the supply side; however, the potential demand generation as a result of this move will far outweigh any negative aspects leading to greater sales numbers and revenues," said Shishir Baijal, Chairman & Managing Director at Knight Frank India.
"We estimate that the reduction in GST can potentially reduce the buyers payout by 4-6 per cent on the overall purchase, depending on the category. The consequent lower ticket-size for new homes will further help in accelerating sales volume especially for the unsold inventory," Baijal added.
At 10:12 am, Nifty Realty index was trading over 1 per cent higher at 235.80 levels, with nine out of 10 constituents trading in the green. Oberoi Realty was trading nearly 1.50 per cent higher at Rs 510.50 apiece on NSE while Sunteck Realty was trading at Rs 346.80, up 2 per cent. In comparison, the S&P BSE Sensex was trading 70 points higher at 35,941.16.