New Delhi, Sep 5 Rationalisation of tax rates on construction material by the GST Council is expected to provide the real estate sector some relief as the overall construction cost would decline by 3.5-4.5 per cent, a report said on Friday.
This will improve project viability, support developer margins, and — if partially passed on — enhance affordability of home-buyers, Crisil Intelligence said in a report.
The government's move to bring cement in the 18 per cent slab from 28 per cent will bring substantial savings on construction costs.
"Cement, being one of the most critical cost elements accounting for 25–30 per cent of raw material expenses, the cut is expected to improve developer margins and lower project costs," according to the report.
Steel, which is another key cost factor for developers, remains unchanged at 18 per cent; however, tax on Marble and travertine blocks, granite blocks, and sand lime bricks has been reduced from 12 per cent to 5 per cent, offering relief particularly to mid-range and premium projects, where these materials are widely used.
The reduction is also expected to improve developer margins and lower project costs as construction materials typically account for 50–60 per cent of the overall construction cost for builders, the report noted.
According to the report, the 10 percentage point reduction in GST on cement is estimated to result in a 3.0- 3.5 per cent savings on overall construction costs.
Moreover, the rate revision on marble, granite and related inputs would be an additional 0.5–1.0 per cent saving.
According to the report, GST reform on construction material is expected to provide the real estate sector some relief even though the rates applicable to property remain unchanged, indicating stability in taxation.
"The rates applicable on affordable housing (1 per cent), under-construction properties (5 per cent) and completed properties (exempt) remain unchanged," the report stated.
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