GST Reforms vs 50% Tariffs: How Will the Housing Sector Fare?

Akash Pharande

India’s housing sector is at a critical turning point. Two major policy changes—GST reforms in real estate and the 50% US tariffs on Indian goods—are set to reshape housing demand, affordability, and supply. While GST reforms may reduce construction costs, rising tariffs could offset these gains. The overall impact will vary across affordable housing, mid-segment housing, and luxury real estate.

GST Reforms: Limited Relief for Housing

The government plans to simplify GST into two slabs of 5% and 18%, likely to be announced around Diwali. This move can benefit the real estate sector in India, especially through a reduction in cement GST from 28% to 18%. This alone can lower developers’ input costs by nearly 10%.

However, the benefits differ across segments. Affordable housing, currently taxed at 1%, may not see direct relief. Still, if Input Tax Credit (ITC) returns, property prices could drop by 2–4%. In the mid-segment housing category, a GST cut from 5% to 3% could reduce prices by 2–3%, provided developers pass on the benefits.

Luxury housing faces a different scenario. High-end materials may fall under a proposed 40% tax slab. This limits price relief. While luxury buyers are less price-sensitive, rising costs still influence buying decisions.

US Tariffs: A Bigger Threat to Real Estate

The 50% US tariffs on Indian exports pose a larger challenge. While aimed at exports, they impact the real estate market in India through higher construction costs.

Key materials like steel, aluminium, and copper are affected. This can increase project costs by 1.5–2.5% for standard housing. For luxury projects, costs may rise by 5% or more due to imported materials. Construction equipment costs have also increased by 3–5% due to global supply chain disruptions.

More importantly, tariffs affect jobs in MSME sectors. These sectors form the core demand base for affordable housing. Lower income stability directly impacts homebuyer sentiment and housing demand.

Market Shift Towards Luxury Housing

Current market conditions favour premium and luxury real estate. Rising construction costs have made affordable housing less viable for many developers. Data from ANAROCK shows that affordable housing supply has dropped from 40% in 2019 to just 12% in H1 2025. Meanwhile, homes priced above INR 1 crore account for nearly 50% of total housing sales.

Construction costs have increased by 40% since 2019. Labour costs have surged by up to 150% in the same period. These rising costs push developers toward premium projects with better margins.

Can GST Reforms Offset Tariff Impact?

GST reforms alone cannot fully offset tariff-driven cost increases. In affordable housing, GST benefits of 2–4% may balance tariff impacts of 2–3%. This creates a neutral or slightly positive outcome. The mid-segment shows a similar trend.

Luxury housing, however, faces a net negative impact of 3–5%. Higher GST slabs and tariffs on imported materials increase costs further.

Beyond this, tariffs may affect India’s exports and GDP growth. A weaker job market could impact housing demand in the short term.

Winners and Losers in the Housing Market

Construction material suppliers may benefit from reduced import competition. However, limited domestic capacity may restrict gains. Large developers with strong balance sheets can absorb rising costs and will likely focus on luxury housing.

Smaller developers, especially those in affordable housing, face tighter margins and higher risks.

For homebuyers, the impact varies. Luxury buyers may face higher prices but can absorb them. First-time buyers may struggle with limited supply and rising costs.

What Homebuyers Should Do

Act strategically: Festive season offers and discounts may provide short-term opportunities.

Choose wisely: Ready-to-move homes avoid GST and may offer better value.

Invest smartly: Tier 2 and peripheral markets can offer better returns.

Plan finances: Secure home loan approvals early to act quickly.

The Road Ahead

GST reforms offer some relief, but they do not fully counter rising costs due to tariffs. Affordable and mid-segment buyers remain under pressure. Meanwhile, developers continue shifting focus toward premium housing.

A short window exists before tariff impacts fully reflect in property prices. For serious homebuyers, especially during the festive season, this may be the right time to enter the Indian real estate market.

Akash Pharande is Managing Director, Pharande Spaces