Simplified GST and Lower Construction Costs Boost Real Estate Affordability
The new simplified GST structure and reduced costs on construction materials are expected to cut real estate expenses by 3-5%, particularly benefiting the affordable housing segment.
GstReal EstateAffordable HousingConstruction CostsHousing MarketReal Estate NewsSep 04, 2025
The new simplified GST structure replaces the earlier five-slab system with just two primary slabs of 5% and 18%, alongside a 40% rate for luxury and ‘sin goods’. This clarity in pricing is likely to strengthen consumer confidence, making the tax implications of homebuying easier to understand and encouraging more first-time buyers and fence-sitters to enter the market. The impact is expected to be especially strong in tier-II and tier-III cities. The reform will draw greater institutional investment into Indian real estate while boosting housing supply nationwide, an analysis by Anarock has said.
“Reduced GST on construction materials like cement can reduce construction costs by as much as 3-5%. Developers, especially those engaged in creating affordable housing, will get major relief in terms of cash flows and margins,” said Anuj Puri, chairman, Anarock Group.
ANAROCK Research reveals that the affordable housing category (below ₹40 lakh) has seen its share of total sales decline from 38% in 2019 to just 18% in 2024. The share of new supply dropped even more dramatically from 40% in 2019 to just 12% in H1 2025. The reduced construction costs, if passed on to homebuyers, can boost demand in these segments.
“From the perspective of the housing market, especially the affordable and mid-income segments, this development is timely and impactful. Rising construction costs and pressure on margins have presented significant challenges to the sector. The potential pass-through of savings will encourage renewed demand. It will also enable more accessible homeownership,” said Venkatesh Gopalakrishnan, Director Group Promoter’s Office, MD - Shapoorji Pallonji Real Estate (SPRE).
CREDAI-MCHI, the apex body of real estate developers in the Mumbai Metropolitan Region (MMR) said the reduction of GST on construction materials such as cement (28% to 18%) and sand-lime bricks/stone inlay work (12% to 5%) is expected to provide some relief to developers, though its impact on overall costs will be modest as developers largely procure materials indirectly through vendors who already avail input tax credits. With construction being a core component of real estate, these reforms will have a marginal impact on construction costs, though certain materials directly purchased by developers such as marble and granite will become cheaper. Homebuyers may see a modest price reduction due to the absence of input tax credits on residential projects. However, the broader GST rationalisation across sectors is expected to boost disposable incomes and spur housing demand.
Sukhraj Nahar, president, CREDAI-MCHI said, “CREDAI-MCHI welcomes the government’s initiative to rationalise GST rates on key construction inputs like cement and sand-lime bricks. While the cost relief to developers and homebuyers is modest at this stage, this is a step in the right direction towards improving affordability and enhancing housing demand in MMR.”
“We remain hopeful that the government will soon address the industry’s long-standing request to retain the 1% GST slab on affordable housing while rationalising the ₹45 lakh price cap, a reform that can significantly accelerate Housing for All by 2030,” he said.
“We await clarity from the government on affordable housing benefits, which remain critical for driving first-time homeownership in MMR,” said Rushi Mehta, secretary, CREDAI-MCHI.
Frequently Asked Questions
What is the new simplified GST structure?
The new simplified GST structure replaces the earlier five-slab system with just two primary slabs of 5% and 18%, alongside a 40% rate for luxury and ‘sin goods’.
How will the reduced GST on construction materials benefit developers?
Reduced GST on construction materials like cement can reduce construction costs by as much as 3-5%, offering relief in terms of cash flows and margins, especially for developers engaged in affordable housing.
What is the expected impact on the housing market?
The reduced construction costs and simplified GST structure are expected to boost consumer confidence, encourage first-time buyers, and enhance housing demand, particularly in tier-II and tier-III cities.
How does CREDAI-MCHI view the GST reduction?
CREDAI-MCHI welcomes the reduction of GST on key construction inputs like cement and sand-lime bricks, although the impact on overall costs is expected to be modest. They hope for further reforms to improve affordability and enhance housing demand.
What additional reforms are needed in the real estate sector?
The industry is hopeful for the government to address the long-standing request to retain the 1% GST slab on affordable housing and rationalise the ₹45 lakh price cap to significantly accelerate Housing for All by 2030.
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