Upcoming GST Changes: Impact on Real Estate Sectors

By Anuj Puri, Chairman, ANAROCK Group

The forthcoming GST changes from September 22 will positively impact the residential, retail and office real estate sectors.
 
Residential Real Estate

• Lower construction costs: Reduced GST on construction materials like cement can reduce construction costs by as much as 3-5 per cent. Developers, especially those engaged in creating affordable housing, will get major relief in terms of cash flows and margins.

ANAROCK Research data show that the affordable housing category (below INR 40 lakh) has seen its share of total sales decline from 38 per cent in 2019 to just 18 per cent in 2024. The share of new supply dropped even more dramatically from 40 per cent in 2019 to just 12 per cent in H1 2025. The reduced construction costs, if passed on to homebuyers, can boost demand in these segments.

• Clearer taxation: The simplified GST structure does away with the old five-slab system and now has only two primary slabs of 5 per cent and 18 per cent in addition to a 40 per cent rate on luxury and so-called ‘sin goods’. The resultant pricing clarity will go a long way in improving overall consumer confidence.

The simplified framework will make the tax implications of buying homes clearer and this clarity can potentially bring significant first-time buyers and fence-sitters to the market. This would especially impact tier 2 and 3 cities.
 
Commercial Real Estate

Commercial real estate currently attracts 12 per cent GST with Input Tax Credit (ITC) available. However, recent developments have complicated the landscape a bit. The elimination of ITC on commercial property leasing implies that developers will no longer be able to claim ITC on project-related costs. This retrospective amendment may increase operational costs and rental prices for office spaces and other commercial properties.
 
The Reverse Charge Mechanism for commercial property rentals by unregistered suppliers, which requires tenants rather than landlords to pay 18 per cent GST on such rentals, adds the compliance burden for businesses renting commercial spaces.
 
Retail Real Estate

• Better project viability: The reduced GST on building materials will result in lower input costs for developers and help speed up the supply of retail real estate projects. Since shopping centres and retail complexes will now incur reduced construction costs, this may result in more competitive rental rates. 
• Supply chain benefits: The GST rationalisation will bring down logistics costs and help streamline supply chains, benefiting retail real estate operations. However, retail properties used for commercial purposes will continue to attract 18 per cent GST on rental income.

Sector-Wide Boost

These reforms are a major positive shift for the real estate industry. Apart from improved transparency and ease of compliance, this simplified GST system will remove most classification confusion and disputes. Since developers will now face lower administrative burdens, they will be able to focus on what really matters—timely completion of projects and overall customer satisfaction—rather than on ways on means to save on taxes.

We can logically expect this major reform to attract more institutional investment into the real estate sector while also boosting housing supply across the country. The government is dovetailing these reforms with the festive season to maximise their positive impact on consumption. This is a major relief amid the ongoing macro-economic challenges and their impact on sentiment and business outcomes.

The reforms are especially positive news for affordable housing. India has a shortfall of nearly 1 crore budget homes in urban markets, and this number could rise to 2.5 crore by 2030 without focused intervention. These GST reforms bring lower construction costs and improved ease of compliance, which can go a long way towards reversing this trend, making homeownership more accessible to middle-class families.