The GST Council’s move to cut tax rates on essential construction materials is expected to reduce project costs, offering relief to both developers and homebuyers. Experts believe this could help revive demand in a market weighed down by sluggish sales. However, the real impact will hinge on whether developers pass on the benefits to buyers or retain them to protect their margins.

The GST Council’s move to cut tax rates on essential construction materials is expected to reduce project costs, offering relief to both developers and homebuyers. (Photo for representational purposes only) (Pixabay)

In its 56th meeting, the GST Council finalized a two-slab structure of 5% and 18%, terming it a Diwali bonanza for consumers. The rate cuts are expected to ease financial burdens and improve affordability across a wide range of goods. But when it comes to housing, experts say the impact on home prices will depend on several factors. Greater clarity is needed on input tax credit for buildings meant for rental use, and the key question remains whether developers will actually pass on the benefits to homebuyers or retain them.

Also, experts are of the opinion that the benefit of lower material costs is not expected to reflect immediately, as most developers are bound by contracts.

GST reforms: What homebuyers can expect

In particular, the government’s move to reduce GST on cement from 28% to 18% will significantly reduce construction costs in real estate.

“This move will help lower overall construction costs to some extent. It is also expected that developers will pass on these benefits to homebuyers by reducing property prices, which have risen sharply over the past few years,” says Deepak Kumar Jain, founder and CEO of TaxManager.in.

And it’s not just cement. granite, marble and travertine blocks, the uncut versions, have also come down significantly, from 12% to 5%. These cuts together could ease construction costs in a meaningful way.

“One important aspect that many are missing is fly ash bricks. Today, almost nobody uses traditional clay bricks; fly ash bricks have become the norm. The GST rate on these has also come down from 12% to 5%. This shift will impact the real estate sector positively because bricks are such a fundamental building material,” says Vivek Jalan, Partner at Tax Connect Advisory Services, a tax firm. In the press note, the term that has been used is sand lime bricks.

Anshuman Magazine, chairman and CEO (India, SE Asia, Middle East & Africa), CBRE said “With cement, steel, and other inputs typically accounting for nearly 40–45% of total construction costs, this reduction will meaningfully lower project expenses. Developers can now pass on part of these savings to homebuyers, improving affordability and stimulating demand across segments. This timely reform comes as a festive season boost, creating the right conditions to spur homebuyer sentiment and drive purchase decisions,” he said.

This benefit is expected to reduce overall project costs for developers, which can potentially be passed on to end-users in terms of lower property prices. “Of all the segments, residential real estate, especially affordable housing, is likely to get a boost in the near-mid-term. Moreover, with homebuyers already benefiting from lower EMIs after repo rate reductions throughout 2025, residential sales across major Indian cities can gain traction in the upcoming festive months.” said Vimal Nadar, National Director and Head, Research at Colliers India.

Clarity on input tax credit could unlock real estate growth

“The bigger concern, however, is the blockage of input tax credit on construction of buildings intended for renting out. The Supreme Court, in the Safari Retreat case, had held that ITC should be available in such cases. But the GST Council went for a retrospective amendment, saying ITC will not be available from July 2017, the very day GST was rolled out. That has created a lot of uncertainty in the industry,” says Jalan.

Also Read: GST on cement cut from 28% to 18%, likely to lower construction costs and boost affordable housing

“If the GST Council can at least relax this provision prospectively, instead of retrospectively, it would be a blockbuster move for real estate. Developers are waiting for clarity here, because tax credits make a huge difference to project costs and long-term viability,” he said.

Will the benefits of the lower GST rate reach homebuyers?

Even if the government reduces indirect taxes, the real question is whether developers will pass on the benefit to homebuyers, experts say.

“There’s a possibility they may retain it to safeguard their margins, rather than lowering prices,” says Abhishek Kumar, founder and chief investment advisor of SahajMoney, a financial planning firm.

Also, experts are of the opinion that the benefit of lower material costs is not expected to reflect immediately, as most developers are bound by contracts.

However, the government has repeatedly said in press briefings, through the revenue secretary, and even by the finance minister that there will be strong engagement with the industry to ensure developers pass on the benefits of these tax cuts. “Ultimately, it is expected that market forces will also compel builders to pass on cost reductions to buyers,” says Jalan.

This is what developers have to say.

“The savings from the GST rate cut on construction materials are relatively small, around 1–2%. Cement typically accounts for 10–12% of the cost of a building’s structure, which itself makes up about 50% of the total construction cost,” explained Pradeep Kumar Aggarwal. founder and chairman. Signature Global.

For example, if the cost of construction is ₹7,000 per sq ft, the structure alone would cost about ₹3,500 per sq ft. Within this, steel contributes roughly 15%, cement 10–12%, and the rest comes from other materials.

“On this basis, the overall cost benefit to homebuyers may be minimal, around 1–2%. Much will also depend on the stage of construction. For projects where the structure is already complete, there will be no impact. For new launches, developers may pass on some benefit by keeping prices steady instead of raising them,” he said.

To cite an example, if a bag of cement costs ₹350, the GST component was earlier ₹100 and may now be about ₹70, resulting in a saving of ₹30 per bag. While this translates to about 7% savings on cement for the developer, its contribution to the total project cost is limited. Some developers may use this cushion to avoid price hikes in upcoming launches, though ongoing projects are unlikely to see any impact, he added.

Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics