Real estate shares rally on hopes of GST rate cut

Shares of real estate companies have rallied by up to 20 per cent on the BSE on hopes of cut in the goods and services tax (GST) rate for under-construction and finished houses to 5 per cent.

Ansal Properties & Infrastructure and Ansal Housing have locked in upper circuit of 20 per cent each. Parsvnath Developers, Ganesh Housing Corporation, Housing Development & Infrastructure (HDIL) and D B Realty were up between 7 per cent and 12 per cent on the BSE. Indiabulls Real Estate, Godrej Properties, Peninsula Land, Ashiana Housing, DLF, Anant Raj, Kolte-Patil Developers and Sobha were up in the range 3 per cent to 6 per cent.

At 11:17 am; the S&P BSE Realty index, the largest gainer among sectoral indices, was up 2.4 per cent on the BSE. In comparison, the benchmark S&P BSE Sensex gained 0.88 per cent or 323 points at 36,018.

The GST Council is slated to meet on January 10 to discuss lowering GST on under-construction flats and houses to 5 per cent, as well as hiking exemption threshold for small and medium enterprises.

The council, in its previous meeting on December 22, 2018, had rationalised the 28 per cent tax slab and reduced rates on 23 goods and services.

In an interview to news agency ANI on Tuesday, January 1, 2019, Prime Minister Narendra Modi indicated that the government wanted to bring under-construction and finished houses under the GST rate slab of 5 per cent. “We wanted to do that. But there were reservations. So, the GST Council could not do it. It has now gone to the committee. We will try to ensure that the committee report is expedited,” Modi said.

Thus far in the first five trading days of the current calendar year 2019, the realty index has outperformed the market by gaining 4 per cent, against a marginal 0.23 per cent decline in the benchmark index.

An improvement in end-user participation on rising affordability, increasing launch of units with mid-income ticket sizes, and implementation of the Real Estate (Regulation and Development) Act, 2016, or RERA, is expected to revive demand for residential real estate in the medium term. Resolution of the recent NBFC liquidity issues, however, would be key for the same, according to the rating agency CRISIL.

Meanwhile, the commercial portfolio is seeing steady lease rentals and healthy demand. Indeed, even as investor interest in the residential segment has been fading due to limited property price appreciation and inability to monetise the assets, commercial real estate is becoming a hub for new investments, the rating agency said in December press release.