HYDERABAD: Apart from the uncertainties regarding implementation of Real Estate Regulations Act (RERA) in Telangana, the tax slabs under Goods and Service Tax (GST) too is expected to further push the industry into a state of chaos.
“At the first glance it looks like there will be a neutral impact from cost perspective,” said Surabhi Arora, senior associate director, Research, Colliers International India. Although, this could mean work contracts attracting around 12 per cent GST with most of the construction material are under 18 and 28 per cent slab, she added.
So far only two states, Maharashtra and Madhya Pradesh, have set up the regulatory body under RERA Act. Telangana has so far set up a committee to draft the RERA bill, the process is still underway. In the meantime, GST could play spoilsport for the sector’s growth this year.
“There will be an impact of supply of residential and commercial projects after the implementation of RERA in states. For the next six to nine months we will see a drop in new projects being announced and that’s already happening,” said Arora. The industry will see a drop in construction activity as most developers are not ready for the Act as they are yet to figure out the outcome. So, they are in a wait-and-watch mode, especially the small developers, she added.
Is it a good time to buy an apartment?
“From the user point of view there is a lot of optimism,” said Arora. However, the public perception that RERA will fix everything is misplaced as it will take time for the regulations to take effect. Everything will depend on state level implementation, she added.
Hyderabad’s real estate developers are presently more focused on getting Occupancy Certificates (OC). “If you get an OC before RERA implementation in the state, then that property will not come under the regulations. So they will try finish the project on time, it’s good for the buyers and will bring equilibrium in the market,” said Arora.
The GST bill is stated to come into effect on June 1 and is expected to add more transparency to the sector. However, the experts warned that in the short term GST will shake up the whole real estate system.
The impact of GST on construction costs is also a point of debate. “Right now, when constructing a building, the developer gets abetment of 75 per cent so the service tax paid by buyer is 25 per cent of the construction cost. However, now in GST it’s not clear if we get abetment or not. said Arora, “It is too early to say whether implementation of the GST will actually cool down the prices in the commercial and residential segments. More clarity will be there in the coming days as it is still not clear that what would be the abatement available for land cost for calculating service tax on under-construction projects,” she added.
Like other sectors, real estate sector in Hyderabad is not immune to the possible inflation the bill could bring. “Developers could pass this added cost to the buyers,” she added.