GST Impact: Luxury Homes Will Cost More
International real estate portals have been entering India and so are international developers. Branded residences are opening up as short-term stays and imported furnishing, fittings, art pieces and in short, an entire lifestyle has made its way into India. For Indians anywhere around the world, having a home in India is a must. This is exactly why reports claim that ultra-high-net-worth individuals call Mumbai and Delhi their home. Each year, the number is just growing. Property portals such as Sotheby's have listed properties worth crores from across the country which are usually match the taste of the well-travelled, well-read and experimental base of investors, none of whom are willing to settle for less. Luxury properties have gained ground in India over the years and although the market capture may not be very high, the sales proceeds are considerable. Therefore, when we say that real estate is in slump and luxury has taken a backseat, you would know why this isn't entirely true.
After the arrival of the Goods and Services Tax (GST), sector players are debating what impact would the new tax regime have on luxury properties. Would it be even more expensive to buy a luxury property today? The answer is affirmative.
Speaking to Mint, Niranjan Hiranandani, Managing Director, Hiranandani Communities said: “As far as luxury properties are concerned, my view is that they are going to be impacted much higher, for the simple reason that they're not giving the full set-off in terms of the land component (currently service tax is charge on 30 per cent of the property value, but GST will be charged on the entire value of the property). So, if the land component was given the set off, I think there would have been less problems but I think they are working on that way. It will not impact affordable or low-cost housing much.”
However, if developers have to pass on the benefit of input tax credits, it has to be the luxury market again because affordable housing leaves no scope for discounts post input tax credits. High-end properties on the other hand call for premium furnishing, fittings, super quality of cement and other raw materials and developers can claim tax credits on such goods which can then be offered as discounts.
In the current scenario, there may be liquidity issues because absorption is low. The build and sell model would be far more lucrative for luxury developers given they can then assess the market and build accordingly.
What does the luxury stock in India look like today?
A cursory glance on PropTiger.com shows that if you are looking out for luxury properties, there are 312 projects priced above Rs 2 crore in Bengaluru, 209 in Chennai, 1,202 in Mumbai, 126 in Gurgaon, 264 in Pune, 99 in Hyderabad and so on. Given that the uptake is slow and carefully thought out, developers would need to strategise and work in tandem with the demand as most of these developers cannot absorb the increased tax as the markets are down.
However, given that the niche buyer will not let go off his taste for finesse, luxury is here to stay.