How the GST rate cut on cement, construction materials will impact homebuying

The real estate industry has hailed the GST Council’s landmark decision to rationalise tax rates on cement (from 28% to 18%) and other construction materials like sand and bricks (from 12% to 5%), among others. The Finance Minister Nirmala Sitharaman-led GST Council's measures announced for the real estate sector are aimed at providing benefits to the affordable and mid-income segments, which have seen major slowdown in the past few quarters.

Industry cheers GST cut on housing materials

The real estate industry has termed the newly announced two-slab GST structure of 5% and 18% as a progressive move, which will rationalise the prevailing inverted duty structure, improve classification, simplify approvals & processing refunds. These are also expected to cut costs at different tiers while enhancing the ease of doing business and driving consumption.

The industry players say the move signals the government’s commitment to supporting infrastructure growth and easing cost pressures in a high-input industry. "While the overall impact will unfold over time across various asset classes, this move undoubtedly contributes to a more sustainable and cost-efficient development environment," says Yateesh Wahaal, Director at Delhi-NCR-based realty major M3M India.

Venkatesh Gopalakrishnan, Director Group Promoter’s Office, MD - Shapoorji Pallonji Real Estate (SPRE), says the decision will significantly ease project costs for developers and boost affordability for homebuyers. "For developers, this relief lowers input costs and strengthens project viability. Industry voices estimate that overall construction costs could decline up to 5%. This offers scope for improved margins, as well as better pricing for end-users."

Gopalakrishnan said rising construction costs and pressure on margins have presented significant challenges to the sector and the potential pass-through of savings will encourage renewed demand.

The industry opines that reforms announced for the construction sector will further encourage investment and enable companies to deliver better infrastructure at a more competitive value. "This decision will bolster market confidence, stimulate demand in both commercial and premium housing segments, and contribute to the sustained development of the NCR real estate ecosystem," says S.K. Sayal, MD & CEO of Bharti Real Estate for the Commercial Real Estate.

Big boost for homebuyers, affordable housing

The GST measures, as announced by the FM, will directly benefit small business, common man and the middle class. These measures align well with the current positive buyer sentiment, which is expected to increase after these measures, especially in the wake of the upcoming festive season ahead.

The move comes at a time when the country prepares for the festive season, and it augurs well for the sector and boosts demand. "Coupled with the reduction in the repo rate, it will add to the affordability of real estate purchases. Most importantly, the move will also add to the pace of infrastructure growth, which again will add to real estate development," says Manoj Gaur, CMD, Gaurs Group.

Some developers have already announced that they will pass on the benefits to end consumers. "With reduced input costs, the overall cost of construction will come down, and we are committed to ensuring that these benefits are passed on to our customers. This means that owning a home becomes more affordable without compromising on quality or design. The timing is ideal, as the festive season is traditionally when families make significant purchase decisions," said Mohit Goel, Managing Director, Omaxe Ltd.

Experts say GST move will have a multiplier effect

The industry experts agree with the developers' sentiments, saying that the move is expected to rehaul project cost structures as cement forms a major value component in the construction cost. "Residential real estate, particularly new homebuyers, stand to gain as developers are likely to pass on the benefit of lower costs in the form of reduced housing prices. Developers’ profitability margins, too can potentially improve, enhancing the overall financial health of the real estate sector," said Vimal Nadar, Senior Director & Head of Research, Colliers India.

The construction materials make up to around 40-45% of total project costs, and the cut in GST rate is poised to bring meaningful savings for developers and, in turn, make homes more affordable for buyers, particularly in the mid-income and affordable housing segments, said Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE. "For developers, the lower costs will free up capital, improve project viability, and enable quicker launches, creating a positive cycle of growth and investment. This reform is also likely to have a multiplier effect, boosting allied industries such as manufacturing, logistics, and employment."

Tax experts also say the rate cuts on cement to 18% should ease financial burdens for real estate developers and improve affordability but adds that the impact on home prices will depend on several factors. "Greater clarity is needed on input tax credit for buildings meant for rental use, and it will need to be seen whether benefits will be passed to homebuyers or not," opines Rajul Bohra, Partner, JSA Advocates & Solicitors.

The FM-led GST Council on Monday announced the rationalisation of the current four-tiered tax rate structure into a citizen-friendly ‘simple tax’ -- a two-rate structure with a standard rate of 18% and a merit rate of 5%; and a special de-merit rate of 40% for a select few goods and services. The move is hailed as a mega reform initiated by the Modi government, aimed at boosting demand and putting more disposable income in the hands of middle class ahead of the upcoming festive season.