India is short of 18.78 million homes, according to Gulf Today. Meanwhile, much of the country’s existing property is unaffordable. As a result, the government has pledged to construct 20 million new affordable properties by 2022, with the aim of helping all Indian citizens to get onto the property ladder. And to show how dedicated they are to the scheme, the government has recently announced an impressive tax reduction on residential housing projects.
Lowering GST rates
Construction projects which get underway from April 1 in India will benefit from a reduced goods and service tax. Rather than paying the previous 8% levy, they will now have to pay a flat rate of 1%. Builders with affordable properties which were already under construction prior to April 1 have been given the option of selecting the new 1% tax if they wish.
However, in doing so, they will be required to pass the input tax benefits from materials and similar to their customers. As such, they’ll need to carefully consider which tax option will keep their tax liability as low as possible.
The benefit of affordable housing
The CEO and Country Head of JLL India, Ramesh Nair says that he hopes the cheaper GST rates will encourage investors to jump on board and that it will “fuel residential sales”. However, it’s good news for existing homeowners too. House prices are predicted to climb a further 2% this year, meaning the average value of a property will go up. As such, homeowners will have more home equity that they can tap into. Older individuals may wish to use a reverse mortgage to free up some cash to invest elsewhere, and younger individuals who own property can utilize similar setups.
What is affordable housing?
A definitive definition of what qualifies as affordable housing has been sought for some time and, following the Indian government’s GST announcement, they also revealed that residential affordable housing is defined as a property up to the value of Rs 45 lakhs and 90 square meters in floor size in non-metro area, and just 60 square meters in metro areas. But, the Maharashtra government has argued that this price cap should be raised to Rs 70 lakhs in costly cities.
Affordable housing in India is crucial. And to prove how dedicated they are to the cause, the Indian government has opted to cut property construction tax on the affordable homes which are currently being built in the country. However, it remains to be seen whether this will aid the government in building the 20 million new homes needed.