The implementation of the Goods and Services Tax (GST) has come as a breather for the real estate industry. Aimed at introducing country-wide uniform taxation, GST has enabled builders to source materials from only registered suppliers in a transparent manner. Real estate in India’s top urban centres will reach 8.2 billion sq ft by 2025 and provide employment to approximately 17 million people across the country, according to a latest report by CBRE South Asia. Anshuman Magazine, chairman, India and South East Asia, CBRE, said, “The rising demand for real estate as well as infrastructure development is expected to propel the construction industry towards a growth trajectory. Already, the implementation of the GST has impacted the cost of raw materials and streamlined inter-state and import taxes, giving the industry a major boost.”
According to the report, among the six leading cities in India (Chennai, Bengaluru, Hyderabad, Pune, Mumbai and Delhi), Mumbai remains the most expensive. Construction costs in Chennai and Bengaluru are almost at par, as are those in Delhi and Pune. The variation in costs could be primarily attributed to different demand levels, proximity to supply centres as well as the efficiency of logistics networks across these cities. While the average cost of construction for a residential apartment in a mid-rise building was pegged at Rs 3,125 per sq ft in Mumbai, the price was found to be Rs 2,750 per sq ft in Delhi and Pune. In Chennai and Bengaluru, the cost was Rs 2,500 per sq ft, while in Hyderabad such an apartment would cost Rs 2,375 per sq ft.
To assess the impact of GST on construction costs, CBRE compared pre-GST taxation rates with the current system. While the impact of taxation on various works components was found to be varied, GST seems to have managed to scale down the overall construction costs to a certain extent. However, the report also highlights certain challenges that the sector has been facing. One of the challenges that the industry needs to overcome is the shortage of quality contractors who can complete projects within stipulated time periods. This is likely to provide an opportunity for the entry of international players to plug in this gap. CBRE believes that the construction industry is at the brink of entering the next stage of the growth curve. This growth is likely to be supported by the clarity that has been offered by the GST as well as the push from the government to quicken the pace of infrastructure development across the country.
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