GST 2.0 to boost demand, reset home prices: Savills India's Arvind Nandan

India's real estate market is at an inflexion point. The demand for affordable and sub-₹50 lakh houses has slowed, while luxury and premium home projects have witnessed steady growth. However, the government's recent mega reforms in the form of GST 2.0, which have reduced the indirect tax slabs to just two (5% and 18%) — along with a demerit slab of 40% — from four earlier, could revive the affordable segment as construction costs decline and developers pass on the benefits to homebuyers to boost sales.

If GST 2.0 benefits are passed on to homebuyers, there could be around 8 to 9% correction in home prices, say experts. "Anything beyond 5% is definitely going to be a very noticeable change in overall price of a unit," Arvind Nandan, Managing Director – Research & Consulting, Savills India, has said in an exclusive conversation with Fortune India.

India's housing market has been behaving strangely in the past couple of years, as the mass market or the affordable segment has slowed down in a cyclical pattern. The residential market came out well after COVID, recorded its best sales in 2021-22, but after that, it started showing signs of slowing down, with 10-11% fewer sales. However, the premium and the luxury segment, units priced Rs 5 crore and above, have been consistently recording higher sales volumes.

"The residential market, which is practically the 80-85% of real estate that we see has shown two distinct patterns: the mass market and the affordable segment hasn't been growing well, but the premium segment has been consistently growing well," says Nandan, highlighting the premiumisation trend, which has been influencing the real estate prices in the country's top markets.

Nandan feels that with GST 2.0 coming into effect, many real estate players will pass on the benefits to consumers. "They're sitting on inventory, which is rotting in a way. They're having to take care of that inventory; there is a holding cost. In my view, 7-8% is a very reasonable."

There is a natural swell in the demand as well. With GST reforms, there is an auspicious Navratri season, followed by Diwali, which is set to revive the demand. "The whole month and a half is a wonderful time. You really have to be disconnected from the marketplace to not pass it (GST cut) on."

"There is so much unsold inventory anyway. The first reflex or instinct will be to clear it. But real estate is a long-term product creation cycle. You will have to allow for the existing stock to clear to a reasonable extent, and then the speed should pick up," he says.

Will the government's GST measures lead to more developers focusing on more affordable projects? Nandan says in the existing cities inside the urban precincts, while the GST will rationalise construction cost or the input cost, it will still not change the land cost, and therefore, affordable housing creation, in a quick manner, looks difficult despite the GST boost. "I think it should help the middle-income quickly."

Positive outlook for other real estate segments

When it comes to the office and commercial real estate market in India, Nandan feels the services sector is largely unaffected. "Our office sector is primarily driven by the services. There is a component of consumer durables, goods and engineering too, but 60-65% driven by services. That is not unaffected. The momentum we saw last year and also H1 2025 is visible in H1 as well. There is no sign of a slowdown."

Co-working vertical of the office market got affected after COVID, but the sector has bounced back from 5-6% absorption to 20% plus. "So co-working is growing."

GCCs also tell a similar story, as instead of outsourcing, it's insourcing in a big way in India. "India is not a favourite GCC location just because of its costs. It is because of the very high skill level that India brings to the table, so GCCs are very strong and likely to remain strong. There is no way you can replace India and make some other country the same platform as India is."

When it comes to physical infrastructure, though, Nandan agrees it is a pain. "I won't say it's dead, it's a work in progress, and it'll take time. You go to any developing country, you're going to face this problem."

India has become a global GCC hub, with a majority of global giants setting up GCCs here, thanks to the right ecosystem the country offers. The southern states of India largely dominate the GCC's space. "About two-thirds of our GCC demand is met by the Southern Triangle of Bangalore, Hyderabad and Chennai. The southern cities have somehow had a bigger share of the GCCs," says Nandan.

When it comes to warehousing, industrial and logistics real estate, e-commerce, manufacturing, and third-party logistics are the three prominent forces driving the space. Additionally, dark stores are also emerging as key warehousing assets, he says. "In warehousing, the first half of this year saw a record in terms of demand, and the second half is looking equally strong. In 2025, we will have an all-time high of warehousing, industrial warehousing, and leasing."