The reduction in GST can potentially reduce the buyers payout by 6 per cent to 7 per cent on the overall purchase, depending on the category. The consequent accelerating sales will bring down the unsold inventory which has been afflicting the real estate sector.
Knight Frank in its affordability index study said the potential reduction in payouts for purchase of a new home in key cities of India will further improve the affordability quotient across all markets. This is important as an improvement across all major cities with majority being under the 4.5 mark. This will help improve the affordability index further in key markets.
Knight Frank India CEO Shishir Baijal said, ''The decision to reduce the GST on under-construction projects is the most decisive move with a clear focus on demand stimulation as it will improve affordability.''
According to Knight Frank, the ideal affordability is identified at 4.5 times the average annual household income in a city. However, Mumbai (7), NCR (5) and Hyderabad (5) are above the 4.5 affordability benchmark.
It is now estimated that a house in Mumbai will cost approximately 7 times the annual household income against 11 times in 2010. ''Still, the city is India's most expensive housing market and reducing the GST rate is an astute step to further improve the affordability across cities,'' said Knight Frank in its study.
Also, the reduction in the GST rates will give the necessary fillip to the demand in under -construction segment, which has been suffering from low sales in the last few quarters. The elimination of input credit tax benefit may hit profitability in the supply side; however, the potential demand generation as a result of this move will outweigh any negative aspects leading to greater sale numbers and revenues.
