GST Reforms: Can Simplified Tax Structure Lower Housing Prices and Boost Affordability?
The government's proposed GST reforms aim to streamline tax rates, potentially reducing the overall tax burden on construction materials. But will these changes make a significant impact on housing prices, especially in the affordable segment?
Gst ReformsHousing PricesReal EstateAffordable HousingConstruction CostsReal Estate NewsAug 21, 2025
For affordable housing, currently taxed at 1%, the impact of GST changes would be limited. However, lower input costs, particularly if input tax credits (ITC) are restored, could reduce prices by 2–4%. In the mid-segment, a GST cut from 5% to 3% could bring down prices by 2–3%, an analysis by Anarock has shown.
In the luxury homes segment, while input costs may reduce, the luxury items used in such projects may be subject to the highest 40% rate, thus reducing the potential for price reductions, it said.
Mumbai, Delhi NCR, and Bengaluru remain the most expensive cities for construction. In these metros, luxury housing costs exceed ₹5,000 per sq. ft, while mid-range housing typically ranges from ₹2,000–2,800 per sq. ft, and affordable housing falls between ₹1,500–2,000 per sq. ft.
Between 2019 and 2024, construction costs for homes rose about 40%, with a 27.3% increase occurring in just three years. In October 2021, the average cost for Grade A projects in tier-1 cities was around ₹2,200 per sq. ft, rising to approximately ₹2,800 per sq. ft by October 2024.
Affordable housing projects tend to involve the lowest costs per square foot, with standard materials and basic finishes, starting from ₹1,500– ₹2,000 per sq. ft even in metros.
Mid-range homes call for higher-grade materials and branded fixtures and fittings, with costs typically ₹2,000– ₹2,800 per sq ft or higher.
Luxury projects tend to use imported finishes and involve high-end architecture and advanced amenities. These push construction costs above ₹3,000– ₹5,000 per sq. ft in top cities, the analysis showed.
Most developers tend to pass on increased input costs, either in part or completely, to their buyers. Recent data shows that at least 5–6% of the total input cost increases are directly reflected in housing prices. In affordable housing, even a hike of ₹500– ₹800 per sq. ft can sharply impact buyer access, since an increase of ₹5 lakh is a massive additional burden for price-sensitive buyers when compared to those who buy premium or luxury housing, the analysis showed.
Smaller players who develop affordable housing already face thinner margins and are often unable to absorb even small cost increases. Many such developers have slowed down their launches or cut corners on amenities. In contrast, larger developers and luxury segment players can absorb cost increases because they enjoy higher margins and wield higher brand value, the Anarock analysis showed.
Most builder-buyer agreements include escalation charges, letting developers adjust sale prices upward along with cost increases, especially for under construction projects. This legal flexibility in the absence of regulatory constraints is behind much of the price transmission to buyers.
The combined effect has resulted in residential real estate prices rising by between 9-12% annually in recent years, with the increased construction costs a major driver along with rising land costs and reducing inventory. Pricing power remains strongest in metro cities, with less pronounced effects in smaller towns and cities where demand is lower, the analysis added.
Frequently Asked Questions
What are the proposed GST reforms for construction materials?
The proposed GST reforms aim to streamline tax rates to just 5% and 18%, with the tax on construction materials like cement likely falling from 28% to 18%.
How will the GST reforms impact affordable housing prices?
While the impact of GST changes on affordable housing, currently taxed at 1%, is limited, lower input costs could reduce prices by 2–4% if input tax credits (ITC) are restored.
What is the expected impact on luxury housing prices?
In the luxury homes segment, while input costs may reduce, the luxury items used in such projects may be subject to the highest 40% rate, thus reducing the potential for price reductions.
Which cities are the most expensive for construction?
Mumbai, Delhi NCR, and Bengaluru remain the most expensive cities for construction, with luxury housing costs exceeding ₹5,000 per sq. ft.
How do construction cost increases affect home buyers?
Most developers pass on increased input costs to buyers, with at least 5–6% of the total input cost increases directly reflected in housing prices. In affordable housing, even a small hike can significantly impact buyer access.
Related News Articles
Godrej Properties Set to Surpass Rs 20,000 Crore Project Addition Target in FY25
Godrej Properties is likely to exceed its guidance of Rs 20,000 crore worth of project additions for business development in FY25, driven by a strong pipeline and robust operating cash flow.
Shaping Urban India: The Evolution of Real Estate Since Independence
India's real estate sector has played a pivotal role in shaping urban development since independence. With the urban population growing from 62 million in 1947 to over 485 million today, the sector has undergone significant transformations.
China's Economy Struggles to Shift into High Gear
China's economy continues to face headwinds from a slowing real estate sector, with property investment down 10.8% year-over-year.
Maharashtra Assembly Elections: CEC Rajiv Kumar Confirms Poll Dates, Assures Level Playing Field
Maharashtra assembly elections date, says CEC Rajiv Kumar, assures level playing field, considers festivals like Diwali
REPL Gets Green Light from SEBI for ImpactR SM-REIT
Rudrabhishek Enterprises Limited (REPL) has secured registration for Small and Medium Real Estate Investment Trusts (SM REITs) from the Securities and Exchange Board of India (SEBI), paving the way for a new investment opportunity in the Indian real estat
Maharashtra Cabinet Revises Policy for Technology Mega Projects
The Maharashtra Cabinet has made significant revisions to the policy for technology mega projects, aiming to attract more investments and boost the state's economy. These changes are expected to streamline the approval process and offer better incentives