GST on FSI Charges May Drive Up Housing Prices by 10%, Dampening Demand: Developers

2024-12-21 01:07:22

Developers Warn GST on FSI Charges Could Make Affordable Housing Unviable, Push Prices Up by 7-10%

Real estate developers across India have raised concerns over the potential imposition of an 18% Goods and Services Tax (GST) on FSI (Floor Space Index) and additional FSI charges, warning that such a move could drive up housing prices by 7-10% and adversely affect the purchasing power of middle-class homebuyers.

In a letter to Finance Minister Nirmala Sitharaman dated December 20, the Confederation of Real Estate Developers Associations of India (CREDAI) urged the government to reconsider the proposal, which is expected to be discussed in the GST Council meeting on December 21 in Jaisalmer, Rajasthan.

CREDAI emphasized that applying GST to FSI charges paid to local authorities would significantly increase project costs, leading to higher property prices nationwide and threatening the viability of affordable housing projects.

FSI, also known as Floor Area Ratio (FAR), determines the permissible construction area on a plot of land, making it a critical component of real estate project costs. Developers argue that retrospective or prospective GST charges on FSI payments could disrupt financial planning for ongoing and completed projects, potentially stalling developments and placing undue financial burdens on homebuyers.

Boman Irani, President of CREDAI, highlighted the cascading impact of the proposed tax, stating, “Imposing 18% GST on FSI charges will act as a deterrent to housing supply and demand. This additional financial obligation risks increasing housing prices and destabilizing the financial foundation of projects, particularly those aimed at affordable housing.”

Niranjan Hiranandani, Chairman of the National Real Estate Development Council (NAREDCO), echoed these concerns, describing the proposal as alarming for an industry already grappling with rising raw material costs, expensive labor, and high development premiums. He warned that such a tax would undermine the affordability index, disrupt the supply of affordable housing, and threaten the government’s ‘Housing for All’ mission.

Developers collectively urged the government to exempt FSI and additional FSI charges from GST, arguing that the additional costs would hinder the growth of a sector critical to job creation and linked to over 300 ancillary industries.