GST 2.0: Revolutionizing the Indian Real Estate Market
The upcoming GST reforms, set to take effect on September 22, 2025, are expected to bring significant benefits to the residential, retail, and commercial real estate sectors. By simplifying tax structures and reducing construction costs, these reforms aim to drive housing demand, enhance project viability, and attract institutional investment.
Gst ReformsReal EstateAffordable HousingConstruction CostsInstitutional InvestmentReal Estate NewsSep 04, 2025
One of the most direct benefits for the residential sector lies in the reduction of GST on key construction materials such as cement, which can lower construction costs by 3–5%. According to Anuj Puri, Chairman of ANAROCK Group, this will provide major relief to developers—particularly those building affordable housing, where margins are thin and cash flows are tight. ANAROCK Research data shows that the affordable housing segment (homes priced below ₹40 lakh) has been losing momentum: its share of total sales dropped from 38% in 2019 to 18% in 2024, while its share of new supply plunged from 40% in 2019 to just 12% in H1 2025. Lower input costs, if passed on to homebuyers, could help revive demand in this critical segment.
The move to a simplified GST structure, which replaces the earlier five-slab system with just two primary slabs of 5% and 18% (plus a 40% rate on luxury and sin goods), will also improve transparency. “The resultant pricing clarity will go a long way in improving overall consumer confidence,” said Puri. This clarity is expected to bring fence-sitters and first-time buyers into the market, with tier-II and tier-III cities likely to see notable demand acceleration.
For the commercial real estate sector, the picture is mixed. While projects continue to attract 12% GST with Input Tax Credit (ITC) eligibility, recent changes are raising concerns. “The elimination of ITC on commercial property leasing implies that developers will no longer be able to claim project-related credits. This retrospective amendment may increase operational costs and, in turn, rental prices for office spaces and other commercial properties,” Puri explained. Further, the introduction of the Reverse Charge Mechanism (RCM) means that tenants leasing from unregistered suppliers will now shoulder the burden of paying 18% GST, increasing compliance requirements for businesses renting commercial spaces.
The retail segment stands to gain from the GST cuts on building materials, which will reduce input costs and enhance project viability for shopping centres and retail complexes. “Lower construction costs may translate into more competitive rental rates, making retail projects more attractive,” Puri noted. Additionally, the rationalization of GST is expected to streamline supply chains and lower logistics costs, indirectly supporting retail real estate operations. However, rental income from retail properties will continue to attract 18% GST, which remains a consideration for investors.
At a broader level, the GST overhaul is expected to deliver greater transparency, reduce administrative burdens, and minimize disputes over tax classification. Puri emphasized that this will allow developers to focus more on timely project completion and customer satisfaction rather than tax structuring. “With simplified compliance and lower construction costs, we can logically expect these reforms to attract more institutional investment into Indian real estate while boosting housing supply across the country,” Puri said. The timing, aligned with the festive season, is expected to further amplify positive sentiment and consumption.
Perhaps the greatest impact will be on affordable housing, where India faces a shortfall of nearly 1 crore urban homes, projected to rise to 2.5 crore by 2030 without intervention. Puri believes these reforms are a “major relief” as they address both cost and compliance hurdles. “By making homeownership more accessible to middle-class families, GST 2.0 could play a pivotal role in reversing the declining trend in affordable housing supply,” he concluded.
Frequently Asked Questions
When are the GST reforms set to take effect?
The GST reforms are set to take effect on September 22, 2025.
How will the GST reforms benefit the residential real estate sector?
The GST reforms will reduce construction costs by lowering taxes on key materials like cement, which can help revive demand in the affordable housing segment and bring more first-time buyers into the market.
What are the concerns for the commercial real estate sector?
The elimination of Input Tax Credit (ITC) on commercial property leasing and the introduction of the Reverse Charge Mechanism (RCM) may increase operational costs and compliance requirements for businesses renting commercial spaces.
How will the retail real estate sector benefit from the GST reforms?
The retail sector will benefit from reduced input costs due to lower GST on building materials, which can lead to more competitive rental rates and enhanced project viability for shopping centers and retail complexes.
What is the expected impact of GST 2.0 on affordable housing?
GST 2.0 aims to make homeownership more accessible to middle-class families by reducing construction costs and addressing compliance hurdles, which could help reverse the declining trend in affordable housing supply.
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