Prestige Estates, DLF, Oberoi Realty: What GST rate rationalisation means for realty sector

Real estate stocks: The majority of real estate stocks were trading in the red in the morning trade on Friday, September 5. The NIFTY REALTY index was trading 0.79% lower at 875.80 levels. Eight out of 10 constituents were trading in the red.

The biggest loser on the index was Prestige Estates Projects (down 2%). Next on the losers' list were Oberoi Realty (down 1.45%), Godrej Properties (down 1.42%), and Sobha Ltd (down 1.3%).

On the flip side, Anant Raj was trading 0.57% higher, and Raymond Realty was trading at ₹611.40, up 0.11%.

What GST 2.0 means for real estate sector

Analysts note that the latest GST restructuring comes as a major boost for the real estate sector. Lower GST on construction materials such as cement is expected to enhance housing affordability by reducing input costs, while reduced GST on other goods could improve disposable income, thereby stimulating real estate demand.

Vimal Nadar, Senior Director & Head of Research, Colliers India, says the newly announced two-slab GST structure of 5% and 18% is a progressive move to rationalise the prevailing inverted duty structure, improve classification, and simplify approvals and processing refunds. These measures will surely cut costs at different tiers while enhancing the ease of doing business and driving consumption.

"Within real estate, the slashing of GST on cement will play a critical role in overhauling project cost structures, as cement forms a major value component in the overall cost of construction. Residential real estate, particularly new homebuyers, stands to gain, as developers are likely to pass on the benefit of lower costs in the form of reduced housing prices. Developers’ profitability margins, too, can potentially improve, enhancing the overall financial health of the real estate sector," Nadar added.

The timing of this rollout is appropriate, with the festive season in the offing, and the real estate sector is already reaping the benefits of favourable interest rates, Nadar said.

Echoing similar views, Piyush Bothra, co-founder and CFO at Square Yards, says that with the reduction in costs of key construction materials such as cement and steel, input expenses for developers are expected to ease, making projects more viable. The move towards a simplified two-slab structure will also streamline compliance, making processes smoother and faster.

For the residential segment, this is likely to translate into tangible benefits for homebuyers as developers pass on the savings over the coming months.

While the impact may take some time to reflect, it could provide much-needed relief in the backdrop of rising property prices and add to overall affordability. Coupled with the optimism of the upcoming festive season, these reforms are well placed to drive stronger demand in the property market, Bothra added.

However, Shrinivas Rao, the CEO at Vestian, cautions that the overall impact may remain limited if these savings are not adequately passed on to end-consumers.