The reduction in Goods and Services Tax (GST) for properties under construction will boost demand and increase sales, Moody's Investors Service said on Wednesday.
The move will improve housing affordability as the amount to be paid by a potential house buyer will be reduced, which will increase demand for property, it said adding the change is also credit positive for property developers.
On February 24, the GST Council reduced the GST payable on houses under construction to 5 per cent from the current effective rate of 12 per cent and on affordable housing under construction to 1 per cent from the current effective rate of 8 per cent.
The new rates are applicable from April 1.
However, Moody's said the magnitude of the credit positive effect for property developers from the GST changes and any increase in the demand for real estate is yet to be seen.
The new GST measures eliminate the ability to claim input tax credit, which may hit the profitability of the developers, it said.
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