Due to continuing anomalies in the GST structure, the Centre’s decision to slash GST from 12% to 8% for affordable housing projects is not benefitting homebuyers fully as the Centre might have expected.
Between what the developer spends as GST on construction and what he collects as GST from the buyer is a shortfall of more than Rs 50 per sqft. As developers increase cost of apartments to recover this differential amount, the customer ends up paying roughly Rs 31,000 more on a 600 sqft flat, a back-of-the-envelope calculation shows.
In an affordable housing project costing Rs 3,250 per sqft, 81% of value of items used for construction like electrical wires, switches, sanitary fittings, ready-mix concrete, tiles, paint, granite and wooden and aluminium joineries attract 18% GST. Cement, which accounts for about 7%, attracts 28% GST. And, 8% of value of concrete blocks and LED lights, attract 12% GST and about 4% of gravel, river sand, M sand and quarry dust attract 5% GST.
Based on weighted average, cost of construction material is Rs 1,200 and 17% weighted average GST on it is Rs 204. Labour costs Rs 400 and 18% GST on that is Rs 72. Consultant’s fee, marketing expenses and one-year maintenance is roughly Rs 200, and 18% GST on that is Rs 36. A developer spends Rs 312 per sqft as GST, but recovers just Rs 260 per sqft (8%) from the customer by selling an apartment at Rs 3,250 per sqft. The shortfall, between what the developer pays as GST and what he recovers from the customer, is Rs 52.
“No developer will be able to absorb this much burden. There is no other alternative than loading this cost on the project,” said P Suresh, MD of Arun Excello, a major affordable housing projects developer in Chennai. “The government should look into this anomaly and set it right to bring down cost of affordable housing,” he said, adding that slashing GST on labour cost from 18% to 5% to nullify the difference could be a solution.