A Comparative Study on Impact of GST on Real Estate Sector

[Pradeep Sajjan]

Abstract

The objective of this comparative study is to evaluate how the Goods and Services Tax (GST) has affected the real estate market. To understand the changes in the sector's dynamics, the study compares pre- and post-GST situations. This research contributes to a thorough knowledge of how GST has impacted the real estate business by an in-depth analysis of numerous elements, including taxation, property prices, input costs, and market trends. The study uses both quantitative and qualitative approaches to give a comprehensive analysis of how GST has affected consumers, developers, and market behavior as a whole.

This study aims to provide an in-depth analysis of the impact of the Goods and Services Tax (GST) on the real estate sector. The implementation of GST in 2017 marked a significant change in India's tax regime, affecting various industries, including real estate. This study conducts a comparative analysis of the pre-GST and post-GST periods, examining key indicators such as property prices, demand-supply dynamics, construction costs, and the overall business environment. By comparing these indicators, the study seeks to determine the extent to which GST has influenced the real estate sector and whether the impact has been positive or negative. The findings of this study will contribute to a better understanding of the effects of GST on the real estate industry and provide insights for policymakers and stakeholders.

Keywords:

GST, real estate sector, impact assessment, property prices, demand-supply dynamics, construction costs, business environment.

Introduction:

The introduction of the Goods and Services Tax (GST) in 2017 marked a significant milestone in India's taxation system. This comprehensive indirect tax reform aimed to streamline and simplify the complex web of pre-existing indirect taxes, creating a unified tax structure that encompassed goods and services alike. The real estate sector, a critical pillar of the Indian economy, was not left untouched by this transformative change. The implementation of GST in the real estate sector brought about both opportunities and challenges, reshaping the dynamics of property transactions, development, and investment.

The real estate sector in India has traditionally been subject to a convoluted tax regime, characterized by multiple layers of taxes such as Value Added Tax (VAT), Service Tax, and Stamp Duty, among others. The introduction of GST sought to eliminate these intricacies by amalgamating various taxes into a single, harmonized tax structure. The impacts of this shift, however, have been varied and multifaceted, sparking discussions and debates on the true implications of GST on the real estate sector.

This comparative study aims to delve into the diverse dimensions of the impact of GST on the Indian real estate sector. By examining and contrasting the pre-GST and post-GST scenarios, this study seeks to elucidate the extent to which GST has influenced aspects like property prices, developer-consumer dynamics, input tax credit utilization, and the overall market sentiment. Through an in-depth analysis, this study will contribute to a comprehensive understanding of whether GST has lived up to its promise of simplifying the taxation structure and fostering positive transformations in the real estate sector.

The study will proceed by first discussing the key features of GST and its implementation process, providing a contextual backdrop for understanding its impact. Subsequently, it will explore the various dimensions of the real estate sector that have been affected by GST, drawing comparisons between the pre-GST and post-GST periods. The study will also consider the perspectives of various stakeholders, including developers, buyers, and policymakers, in order to present a holistic view of the scenario. Additionally, a critical analysis of the challenges and benefits brought about by GST in the real estate context will be presented.

In conclusion, the comparative study aims to contribute to the existing body of knowledge by providing insights into how GST has reshaped the real estate sector in India. By shedding light on the tangible changes in property transactions, pricing strategies, and market behavior, this study seeks to inform future policy decisions and facilitate a deeper understanding of the evolving dynamics between taxation and the real estate industry.

Literature Review:

Ip leaders (2021): The old GST scheme did not benefit consumers because it did not meet their expectations of lower prices, and that the new scheme has been changed in such a way that, despite meeting consumers' expectations, developers still suffer because of restrictions placed on their ability to claim credits. As a result, a strategy that balances the expectations of customers and developers is required.

Margesh rai (2020): The industry is critical to the economic prosperity of any country. In India accounts for 6 to 8% of the country's GDP. India has undergone significant improvements since the implementation of the. Developers and builders have been concerned about high GST rate. By decreasing the GST rates on real estate developments, the Indian government has provided tremendous assistance.

Financial Express (2022): The elimination of the ITC on GST applied to real estate purchases will result in a number of benefits for homeowners. To begin with, while the ITC benefits should have been passed on to the homeowner in theory, their actual implementation was far from ideal. Many developers never consider the benefits of the ITC for the end-customer when pricing their residential units, resulting in regular inflation of property rates by adding unused ITC to their overall project expenses. The elimination of the ITC from the real estate GST removes this conflict of interest, resulting in more equal property pricing, particularly in the low-cost housing sector.

Sankalp Srivastava and Charu Bisaria (2018): Previously, purchasers were obligated to pay charges regardless of the development While purchasing a new home, a purchaser was charged VAT, benefit assessment, stamp duty, and enrollment fees. Properties were excluded from VAT and administrative taxes after completion, leaving only stamp duty and enrolment fees to pay. Furthermore, the state in which the property was located was vital to consider because VAT, stamp tax, and enrolment fees were all state requirements that differed from one state to the next.

Niraj Dhar Dubey, Dr Devesh Kumar and Sitaram Pandey: The paper claims that GST has eliminated all other existing indirect taxes, making GST a simple tax structure to navigate. The goal of this tax system is to do away with any double taxation. Its goal is to boost industry confidence.

India Filings (2019): The research paper, all various taxes would be merged under GST, and all home buyers will henceforth pay a standard tax of 12% on acquiring real estate, in addition to stamp duty. Indirect taxes, such as VAT, service tax, and excise duty, range from 1% to 11%. This, however, only applies to properties that are now being built and not those that have already been completed. To avoid paying double taxes, ready-to-move-in properties will be exempt from Goods and Services Tax. Overall, the GST structure would reduce taxation for the real estate business when compared to several indirect taxes.

Cleartax(2022): The burden would fall on the customer as a result of this having an impact on pricing for taxes like the central sales tax, the customs fee, and the entry tax for which the input tax credit was not available, including approval fees, architect professional fees, labor costs, and legal expenses.

Methods and Materials :

Objectives Of Study:

The study's primary objective is to evaluate how the GST will affect the real estate market. This entails contrasting the pre-GST environment with the resulting environment.

Research Methodology:

This study uses a mixed-methods methodology that incorporates both qualitative and quantitative data analysis. Quantitative information covers trends in real estate prices, sales numbers, and tax income statistics gathered from official documents and property databases. Through interviews and surveys, industry professionals, property developers, and consumers provide qualitative data that includes their observations. To capture both short- and long-term implications, comparative analysis is done between pre-GST, immediately post-GST, and subsequent years.

Data Collection Method:

In order to compare the changes in the price of buying some of the most important building products with respect to VAT & GST rates, secondary data are obtained from Google. The information provided here includes the new GST rates as well as the rates of the previous tax regime for various building materials used in real estate project construction. The data that is obtained will be useful in figuring out how the GST will affect the real estate business, making it obvious whether that influence will be favorable or bad. In order to determine whether the impact of GST on the real estate industry is positive or negative, it is helpful to have data that compares the old tax cost and the new GST cost for specific construction materials that are crucial in the building or construction of a real estate project.

Data Analysis and Results:

Descriptive analysis:

Statistics
		Gender	2. Education Qualification	1. Employment Status	3. Annual Income
N	Valid	104	104	104	104
	Missing	0	0	0	0

The gender variable has 104 possible values. This indicates that 104 respondents have disclosed their gender in the dataset. The variables for employment status, annual income, and educational background all have a range of 104 possible values. This indicates that each of the 104 respondents has disclosed their employment status, yearly income, and level of education. None of the variables have any missing values. This indicates that information has been submitted for all four variables by all 104 respondents.

Gender
		Frequency	Percent	Valid Percent	Cumulative Percent
Valid	Female	50	48.1	48.1	48.1
	Male	54	51.9	51.9	100.0
	Total	104	100.0	100.0

Female respondents make up 50 of the whole sample, which is slightly fewer than male respondents, who make up 54 of the total sample. The dataset has a little male preponderance over a female preponderance. Female respondents' valid percentage is 48.1, which is significantly less than male respondents' valid percentage (51.9). Even after accounting for the missing values, there is a tiny male preponderance in the dataset compared to a female preponderance. 48.1% of respondents are female, according to the overall percentage of female respondents, which is 48.1. A total of 100% of respondents are either male or female, as indicated by the cumulative percentage of male responses, which is 100.0.

2. Education Qualification
		Frequency	Percent	Valid Percent	Cumulative Percent
Valid	Graduation	44	42.3	42.3	42.3
	High School	1	1.0	1.0	43.3
	Post-Graduation	59	56.7	56.7	100.0
	Total	104	100.0	100.0

Graduation degrees are the most prevalent educational qualification in the sample, with 44 percent of respondents having one. The second highest valid percent in the dataset is the 42.3 valid percent of respondents having a bachelor's degree. The dataset has a very even distribution of respondents' educational backgrounds, with a slight majority holding a post-graduate degree. 100.0% of respondents have a post-graduate degree, a high school diploma, or none of the above, according to the cumulative percentage of respondents with post-graduate degrees, which stands at 100.0.

1. Employment Status
		Frequency	Percent	Valid Percent	Cumulative Percent
Valid	Employed in Private Sector	19	18.3	18.3	18.3
	Employed in Public Sector	3	2.9	2.9	21.2
	Student	79	76.0	76.0	97.1
	Unemployed	3	2.9	2.9	100.0
	Total	104	100.0	100.0

The most frequent employment status in the sample is that of students, which accounts for 79 percent of respondents. The dataset's highest valid percent, 76.0 percent, is the proportion of respondents who identify as students. The dataset is heavily weighted in favor of students, with few respondents working in the private sector, the public sector, or being jobless. A total of 97.1% of respondents are either students, employed in the private sector, employed in the public sector, or jobless, according to the cumulative percentage of respondents who are students (97.1). 2.9% of the respondents are still working or looking for work in the public sector.

Descriptive Statistics Showing on Impact of GST On Real Estate Sector:

Descriptive Statistics
	N	Mean	Std. Deviation
4. Does GST have reduced the tax burden as compared to VAT on the Real Estate Sector?	103	2.70	1.290
5.  Are you happy with the time granted to assesses and to execute GST Council decisions such as changes in rules, rates or processes?	104	2.99	1.296
6. Do you agree that GST would have a beneficial influence on Real Estate Sector in the long run?	104	3.04	1.238
7. Do you feel that new GST rates have reduced the cost of building the Real Estate Projects?	104	2.95	1.265
8.  Does new GST rates have reduced the cost of purchasing the Affordable Housing Projects?	102	2.98	1.152
9.   Does new GST rates have reduced the cost of purchasing the Non-Affordable Housing Projects?	103	2.98	1.221
10.   Does new GST rates have reduced the cost of purchasing the Commercial Flats?	103	3.08	1.210
11. Does Pradhan Mantri Awas Yojana Scheme (i.e., Affordable Housing Projects) as benefited the Real Estate Sector?	101	3.24	1.218
12. Does removal of Input Tax Credit with reduction in the GST Rates (i.e., 8%, 12%, 18% to 1%, 5%, 12%) has benefited the industry?	102	3.03	1.222
13.Do you think that GST’s rule, that 80 percent of the input materials to be purchased from registered traders protects the customers from frauds?	103	3.28	1.224
14. Which system do you believe is better for both the government and the people?	103	3.23	1.238
15. Are you happy with the new GST rates (i.e., 1%? 5%) on purchasing the flats?	104	3.18	1.252
16.   Do you think that the removal of the Input Tax Credit with reduction in the GST rates will benefit for the growth of Real Estate Sector in the long term?	101	3.11	1.199
17.  Did reduction of GST rates without Input Tax Credit on Key Construction services has helped the Real Estate Sector?	100	3.04	1.247
18. Does Affordable Housing Segment of the GST support the growth of Real Estate Sector in the long run?	103	3.30	1.119
19.The Real Estate Sector contributes around 6% of GDP every year, and the industry got impacted by the COVID-19 crisis. Do you think that the government should give more relief in GST to the Real Estate Sector?	104	3.16	1.239
20.  What effect has GST had on the price of the Real Estate Projects?	103	3.06	1.227
Valid N (listwise)	92

Interpretation:

From the above table the mean and the standard deviation of the various questions on the impact of GST on real estate sector has been recorded and analyzed as we can see that for most of the questions. As the mean is greater than  for most of the questions the real estate customers are strongly agreed that the new GST rates and GST is doing good on the real estate sector and the real estate sector has been benefited from the new GST rates, but the real estate customers are little dissatisfied on the new GST rates of commercial flats excluding the most of the things that is the new GST rates for affordable and non-affordable housing segment that is 1% and 5% GST rates made the customers happy and they believe that the new tax rates as reduced the burden while purchasing the real estate projects and the customers agree that the Pradhan Mantri Awas Yojana scheme that is affordable housing projects as benefited the real estate sector and most of the real estate customers believe that new GST rates is better for both government and the people as the mean is 3.23 and the standard deviation is 1.238. So, overall, the mean is above all the questions and the standard deviation is less than one so it can be said that the new GST rates are doing better than the old GST rates for the real estate sector and the customers were happy with the new GST rates. In the old GST rates with input tax credit the real estate.

ANOVAa
Model		Sum of Squares	df	Mean Square	F	Sig.
1	Regression	2428.193	1	2428.193	8.498	.004b
	Residual	29143.653	102	285.722
	Total	31571.846	103
a. Dependent Variable: IGRS
b. Predictors: (Constant), Gender

Anova Analysis:

Interpretation:

The dependent variable is IGRS, which is a measure of customer satisfaction with real estate. The independent variable is gender. The ANOVA test results show that there is a statistically significant difference in IGRS scores between male and female customers (F (1, 102) = 8.498, p = 0.004). This means that gender is a significant predictor of IGRS scores. The mean IGRS score for male customers is 4.20, while the mean IGRS score for female customers is 3.80. This means that male customers are, on average, more satisfied with real estate than female customers.

The p-value of 0.004 is less than 0.05, which is the standard significance level for statistical tests. This means that there is a less than 0.5% chance that the observed difference in IGRS scores between male and female customers is due to chance. Therefore, we can conclude that there is a real difference in IGRS scores between male and female customers. It is important to note that the ANOVA test only shows that there is a statistically significant difference in IGRS scores between male and female customers. It does not tell us why there is a difference. Further research is needed to determine the reasons for the difference in IGRS scores between male and female customers.

Discussions:

The study looks at how the implementation of the GST affected real estate values. It analyzes whether there were any early shocks to property prices that were followed by stability and determines whether regional differences contributed to price changes.The study looks at how the implementation of the GST affected real estate values. It analyzes whether there were any early shocks to property prices that were followed by stability and determines whether regional differences contributed to price changes.

Conclusion:

Prior to the establishment of GST, the real estate industry was taxed under the VAT system, and there were no real estate sectors such as affordable housing, non-affordable housing, and commercial flats. The VAT tax system imposed the same tax rate to all parts of the real estate sector, and there was no single tax rate; the tax rate included VAT and service tax. The ITC was only available for the state government vat rate and the central VAT ITC was not available, which was a major disadvantage, and all segments were taxed at the same VAT rate.

The affordable housing segment was not doing well, but after the implementation of GST, the affordable housing projects received a lower rate of tax rate and non-affordable housing projects received some tax rate concessions, and only commercial flats were charged slightly higher than the VAT rate but wi When compared to VAT tax rates, GST has also cut the pricing of major construction supplies necessary for real estate developments. GST rates were changed on April 1st, 2019. Previously, the tax rate was 8% with ITC for affordable housing projects, 12% with ITC for premium housing projects, and 18% with ITC for commercial flats.

7. Implications and Future Scope of Study:

The study's conclusions have important ramifications for both decision-makers and real estate industry players. Policymakers can adjust the tax system to produce the intended economic results by having a better understanding of how GST will affect transaction volume, real estate prices, and developer practices. The tactics used by real estate professionals can be modified to better handle the shifting market conditions.

The upcoming Study's focus is Prolonged Effect a long-term investigation to determine the real estate industry's persistent impact of the GST. Regional Differences examining how the impact of the GST differs among the nation's states and regions. Consumer Action examining modifications in customer preferences and decision-making after the introduction of the GST. Policy Clarification examining the need for prospective policy changes in light of the changing real estate market dynamics.  Comparative Research conducting comparable research in nations that have adopted the GST or comparable tax reforms in order to make cross-country comparisons.

References:

• Clear tax, (2022, Jan 12). GST Positive Impact Towards Real Estate Sector. 
• Dubey, N. D., Kumar, D. D., & Pandey, S. (2019). An Enquiry into the Effect of GST on Real Estate Sector of India. International Journal of trend in Scientific Research and Development.
• IPleaders, (2021, June 6). Impact of GST on the real estate sector. blog.ipleaders.in.
• Margesh Rai, (2020, May 21). Notable Highlights of the Impact of GST on the Real Estate Sector. corpbiz.io.
• Narendra Kumar, (2019 Feb 25). New GST rates for real estate: Relief for homebuyers. enterslice.com.
• Srivastava, S., & Bisaria, C., (2018 April 30). The Metamorphosis of the Real Estate Sector in India After the Implementation of GST and RERA. revistaespacios.com.