The GST Council in February lowered the tax on under-construction properties to 5 per cent
The real estate sector is likely to witness a much-needed uptick in demand and sales during the first quarter of the financial year 2019-20, according to experts and developers, on the back of recent changes in the Goods and Services Tax (GST) rate for the sector and the latest reduction in repo rate.
This hope comes despite the initial apprehensions regarding pick up in sales during the coming Lok Sabha elections due to uncertainty of policy continuation. But a slew of policy decisions in the past couple of months, just ahead of the elections, have given clarity and relief for both the developers and home buyers.
"The Reserve Bank of India (RBI) on its part has been proactive on slashing lending rates. However the onus is now on banks to ensure that there is a stronger transmission of these rate cuts. Once this happens, it is likely to encourage fence-sitting consumers to undertake buying decisions, thereby providing a fillip to the residential sector," said Anshuman Magazine, chairman and CEO, India, South East Asia, Middle East and Africa, CBRE.
The RBI in its latest monetary policy meeting on Thursday reduced repo rate, the rate at which it lends the banks, by 25 basis points (bps) to 6 per cent. The top bank also asked the banks to pass on the rate cut to the consumers.
Niranjan Hiranandani, president, National Real Estate Development Council (NAREDCO), said: "The Indian economy needs liquidity as fuel to power the growth engine. The RBI move is expected to lift industry sentiments, as also provide relief to various stakeholders like corporates as also in real estate, home buyers.
"We expect that banks further pass down the benefit for the rate cut to the home buyers which shall further trigger the home buying in to the actual sales."
Another major factor behind the positive outlook for the real estate is the new GST rates in place from April 1, 2019.
The GST Council in February lowered the tax on under-construction properties to 5 per cent from 18 per cent, and affordable housing projects to 1 per cent from 8 per cent. The new rates, however, come without the benefit of input tax credit (ITC).
In March, the Council approved transition rules on new tax rates for residential property and offered an option to the developers for buildings which were under-construction as March 31, 2019, to shift to the new rates without input tax credit (ITC) or continue with the old rates with it.
This gave more flexibility to the builders as many developers had purchased inputs like raw material and the sudden going out of ITC would have made those projects unviable.
The expectations of higher sales in the current quarter is supported by robust sales during the last quarter, Q4 FY2019.
A recent report by Anarock said that deviating from a usual trend of tepid realty sales ahead of general elections, home sales in the first quarter (Q1) of 2019 (the fourth quarter of FY2019) rose by 12 per cent across seven metro cities in the country compared to the previous quarter.
Around 78,520 units were sold during the January-March period, said the report. Overall supplies also increased during the period across the cities.
"The top cities recorded new launches of around 70,490 units in Q1, 2019 (as opposed to 55,600 units in Q4, 2018), a quarterly increase of 27 per cent," it said, adding that the rise in sale and launches "defies conventional election period trends".
Anuj Puri, chairman of Anarock property consultants, said that although there were anticipation of a negative spill-over impact of the NBFC crisis in the first quarter of 2019, housing sales and new supply assumed an upward trajectory.
"The sector is currently riding on a new wave of optimism following the triple benefits it received from the government in the first three months of 2019. These sops have not only increased homebuyers' sentiments but will also boost the confidence of builders and long-term investors," he added.