How upcoming GST changes will impact India’s real estate sector

Anuj Puri

The forthcoming GST changes, which will go into effect from September 22, 2025, will have a positive impact on the Indian residential, retail, and office real estate sectors.

Residential Real Estate

• Lower construction costs – Reduced GST on construction materials like cement can reduce construction costs by as much as 3-5%. Developers, especially those engages in creating affordable housing, will get major relief in terms of cash flows and margins. ANAROCK Research reveals that the affordable housing category (below Rs 40 lakh) has seen its share of total sales decline from 38% in 2019 to just 18% in 2024. The share of new supply dropped even more dramatically from 40% in 2019 to just 12% in H1 2025. The reduced construction costs, if passed on to homebuyers, can boost demand in these segments.
• Clearer taxation – The simplified GST structure does away with the old five-slab system and now has only two primary slabs of 5% and 18%, in addition to a 40% rate on luxury and so-called ‘sin goods’. The resultant pricing clarity will go a long way in improving overall consumer confidence. The simplified framework will make the tax implications of buying homes clearer and this clarity can potentially bring significant numbers of first-time buyers and fence-sitters to the market. This would have an especially notable impact in tier-II and tier-III cities.

Commercial Real Estate

Commercial real estate currently attracts 12% GST with Input Tax Credit (ITC) available. However, recent developments have complicated the landscape a bit. The elimination of ITC on commercial property leasing implies that developers will no longer be able to claim ITC on project-related costs. This retrospective amendment may increase operational costs and rental prices for office spaces and other commercial properties.

The Reverse Charge Mechanism (RCM) for commercial property rentals by unregistered suppliers, which requires tenants rather than landlords to pay 18% GST on such rentals, adds compliance burden for businesses renting commercial spaces.

Retail Real Estate

• Better project viability – The reduced GST on building materials will result in lower input costs for developers and help speed up the supply of retail real estate projects. Since shopping centres and retail complexes will now incur reduced construction costs, this may result in more competitive rental rates.

• Supply chain benefits – The GST rationalization will bring down logistics costs and help streamline supply chains, benefiting retail real estate operations. However, retail properties used for commercial purposes will continue to attract 18% GST on rental income.

Sector-Wide Boost

These reforms are major positive shift for the Indian real estate industry. Apart from improved transparent and ease of compliance, this simplified GST system will remove most classification confusion and disputes. Since developers will now face lower administrative burdens, they will be able to focus on what really matters – timely completion of projects and overall customer satisfaction – rather than on ways on means to save on taxes.

We can logically expect this major reform to attract more institutional investment into the Indian real estate sector, while also boosting housing supply across the country. The government is dovetailing these reforms with the festive season to maximize their positive impact on consumption. This is a major relief amid the ongoing macro-economic challenges and their impacts on sentiment and business outcomes.

The reforms are especially positive news for affordable housing. India currently has a shortfall of nearly 1 crore budget homes in urban markets, and this number could rise to 2.5 crore by 2030 without focused interventions. These GST reforms bring lower construction costs and improved ease of compliance, which can go a long way towards reversing this trend making homeownership more accessible to middle-class families.

Anuj Puri is Chairman, ANAROCK Group