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India's real estate developers want lower GST on cement-- but that is not going to make apartments cheaper

BI India Bureau | Jun 21, 2019, 04.40PM IST

  • Finance Minister Nirmala Sitharaman to head 35th edition of the GST council meeting.

  • Real estate sector expecting the government to change the GST slab rate for cement
With the 35th edition of GST council meeting beginning on June 21, the government is likely to take key decisions on reducing GST for electric cars, the revenue system of states, and the new return filing system.

This will be the first meeting post general election in India.

The real estate sector has high hopes from the first GST council meeting under the new government. At present, the GST rate slab for cement is 28% and the real estate sector is expecting their long-awaited demand of shifting it to the 18% slab.

“By bringing the GST rate for cement into the 18% slab, the Government indirectly helps create more construction and development-related jobs, not only in the housing sector but also in the infrastructure industry. However, a reduced GST rate on construction materials like cement and steel would also result in increased financial strain in terms of overall revenue loss - perhaps not an ideal circumstance in a period of constrained economic growth,” said Anuj Puri, Chairman, ANAROCK Property Consultations

Will homes get any cheaper?

Even if the inputs costs of real estate sector do come down, experts wonder if they will actually aid the homebuyer.

“This depends on whether the benefits of the reduced cost of raw materials is actually passed on to the consumers. It brings to mind a similar question related to home loan rates vis-a-vis RBI's announcement of repo rate reductions. The actual transmission of such reductions to home loan borrowers has been minimal, even though the RBI lowered its repo rates three consecutive times,” Puri said.

Last year, cement rates actually come down on account of surplus production, but the rate cut in residential housing was never seen. However, there could be certain indirect benefits. Decrease in input costs will boost the supply pipeline, which can keep prices in check.

The government’s dilemma

There are many sectors other than real estate which are seeking possible change in GST slabs. The auto sector too is seeking relaxation as its sales are falling, by as much as 21% in May. This has led to a crisis in the sector where dealers are shutting shops and automakers are cutting production.

As the GDP growth has fallen beyond expectations, the government might work on providing a stimulus to the sector. However, its tax revenues have also been falling, which means how much it can help the economy might come under question.
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