NEW DELHI: Most real estate stocks were trading higher in early trade on Monday after the GST Council on Sunday cut tax rates on under-construction flats to 5 per cent and affordable homes to 1 per cent, effective April 1.
The Nifty Realty index was trading 2.25 per cent higher at 238.40 at around 9.22 am (IST), while the BSE Sensex was up 0.33 per cent at 10,827.25.
Shishir Baijal, Chairman and Managing Director, Knight Frank India said, “The reduction in the GST rates for under-construction projects is the most decisive move by the GST council with a clear focus on demand stimulation. This move will give the necessary fillip to the demand in under-construction segment, which has been suffering from low sales levels for the last many quarters.”
He further added that the elimination of input credit tax benefit may hit profitability for the supply side. However, the potential demand generation as a result of this move will far outweigh any negative aspects leading to greater sales numbers and revenues.
At present, the GST is levied at 12 per cent with input tax credit (ITC) on payments made for under-construction property or ready-to-move-in flats where completion certificate is not issued at the time of sale. For affordable housing units, the existing tax rate is 8 per cent.
Anuj Puri, Chairman – ANAROCK Property Consultants said, “There is still lot more that needs to be done to revive the real estate sector. The issue is more on interest tightened liquidity in the sector. But the move will sentimentally prop up demand, this will bring in more home buyers out, at least there will be a surge in demand. I do not think that all the ills of the sector can be covered with this rate cut.”
Share price of Brigade Enterprises, Unitech and Sunteck rallied over 3 per cent, while Godrej Properties, Prestige EstatesNSE -0.52 %, Sobha, Indiabulls Real Estate gained between 2 per cent and 3 per cent.
Oberoi Realty, Phoenix Mills and DLF advanced over 1 per cent each.
Sameer Kalra, Equity Research Analyst and Founder Target Investing said, “The major cities to benefit will be Mumbai as it has 27 per cent of All India unsold inventory by volume and 30 per cent of All India unsold inventory by value. The small and medium level developers are finding it hard to bring under construction projects to a level where the projects get occupancy certificate cause of inability to sell flats or raise funding from NBFCs. We believe Oberoi RealtyNSE -0.14 % is best place to get the benefit without even the GST rate reduction as four of its projects are completed and the rest are being opened for booking at certain stages taking care of less burden of GST.”