GST on developed plots will further impact realty sector

Hyderabad: The real estate sector will take a further hit if goods and services tax (GST) is levied on developed open plots, said C Prabhakara Rao, president, Telangana Builders Federation (TBF).

Recently, the Authority on Advance Ruling (AAR) on Goods & Services Tax (GST) has issued a ruling that sale of plots with facilities like drainage, water line and electricity will attract a levy of GST.

The AAR has said that the sale of developed plots will be covered under the clause 'construction of a complex intended for sale to a buyer' and accordingly GST will be levied.

"Till date, GST is not applicable to the sale of open plots. Now, it will be made applicable for open plots as well, which will definitely have an impact on the real estate sector," he said.

He however pointed out that the demand for open plots had come down due to Covid-19 crisis. "Normally, people buy open plots for investment purposes.

They are not keen on buying open plots now as with the corona crisis, there is no clarity on what will happen in the next few years. As a consequence, transactions in open plots have come down by almost 70 per cent," he said.

He however maintained that some people who have no other avenues for investments are still buying open plots. These sales account for just 30 per cent of pre Covid-19 level transactions, he added.

Rao further said that the construction activity had also slowed down significantly due to labour shortage. "However, construction workers have started coming back. But they are bringing corona with them too," he said.

According to him, sales of apartments and houses are not as bad as some say because people are keen on buying houses in the wake of work from home concept gaining traction.

"Builders are getting good sales enquiries. But it takes time for enquiries to convert into sales as some buyers are under the impression that prices will come down. But prices are already low in Hyderabad.

So, it is very unlikely that prices will come down as input cost has gone up in the wake of rise in cement and steel prices," he said, adding that no builder would like to sell properties at a loss.

He said that demand for villas is going up. "With work from home pressure and children attending online classes, demand for villas will go up on the city outskirts.

People will also get used to the concept of work from home which needs more space," he said.

According to him, even government departments which have taken offices on rent are asking landlords to reduce rents as they are not fully utilising the office space.

The TBF president said joint development agreements between builders and landowners were taking place. "Seven to eight such agreements have been done in the last two weeks.

This is a clear indication that the sector is on track to recover fast," he said.