Upcoming
GST Changes - Impact India's Real Estate Sectors
Anuj
Puri, Chairman – ANAROCK Group
The
forthcoming GST changes, which will go into effect from September 22, 2025,
will have a positive impact on the Indian residential, retail, and office real
estate sectors.
Residential
Real Estate
- Lower construction costs - Reduced GST on construction
materials like cement can reduce construction costs by as much as 3-5%.
Developers, especially those engages in creating affordable housing, will
get major relief in terms of cash flows and margins. ANAROCK Research
reveals that the affordable housing category (below Rs 40 lakh) has seen
its share of total sales decline from 38% in 2019 to just 18% in 2024. The
share of new supply dropped even more dramatically from 40% in 2019 to
just 12% in H1 2025. The reduced construction costs, if passed on to
homebuyers, can boost demand in these segments.
- Clearer taxation - The simplified GST
structure does away with the old five-slab system and now has only two
primary slabs of 5% and 18%, in addition to a 40% rate on luxury and
so-called ‘sin goods’. The resultant pricing clarity will go a long way in
improving overall consumer confidence. The simplified framework will make
the tax implications of buying homes clearer and this clarity can
potentially bring significant numbers of first-time buyers and
fence-sitters to the market. This would have an especially notable impact
in tier-II and tier-III cities.
Commercial
Real Estate
Commercial
real estate currently attracts 12% GST with Input Tax Credit (ITC) available.
However, recent developments have complicated the landscape a bit. The
elimination of ITC on commercial property leasing implies that developers will
no longer be able to claim ITC on project-related costs. This retrospective
amendment may increase operational costs and rental prices for office spaces
and other commercial properties.
The
Reverse Charge Mechanism (RCM) for commercial property rentals by unregistered
suppliers, which requires tenants rather than landlords to pay 18% GST on such
rentals, adds compliance burden for businesses renting commercial spaces.
Retail
Real Estate
- Better project viability – The reduced GST on
building materials will result in lower input costs for developers and
help speed up the supply of retail real estate projects. Since shopping
centres and retail complexes will now incur reduced construction costs,
this may result in more competitive rental rates.
- Supply chain benefits - The GST rationalization
will bring down logistics costs and help streamline supply chains,
benefiting retail real estate operations. However, retail properties used
for commercial purposes will continue to attract 18% GST on rental income.
Sector-Wide
Boost
These
reforms are major positive shift for the Indian real estate industry. Apart
from improved transparent and ease of compliance, this simplified GST system will
remove most classification confusion and disputes. Since developers will now
face lower administrative burdens, they will be able to focus on what really
matters – timely completion of projects and overall customer satisfaction –
rather than on ways on means to save on taxes.
We can
logically expect this major reform to attract more institutional investment
into the Indian real estate sector, while also boosting housing supply across
the country. The government is dovetailing these reforms with the festive
season to maximize their positive impact on consumption. This is a major relief
amid the ongoing macro-economic challenges and their impacts on sentiment and
business outcomes.
The
reforms are especially positive news for affordable housing. India currently
has a shortfall of nearly 1 crore budget homes in urban markets, and this
number could rise to 2.5 crore by 2030 without focused interventions. These GST
reforms bring lower construction costs and improved ease of compliance, which
can go a long way towards reversing this trend making homeownership more
accessible to middle-class families.
