GST 2.0 & Project Viability: Managing Cost Pressures & Consumer Demand

The launch of GST 2.0 in September 2025 marks a watershed moment for India’s real estate sector, arriving just as festive season demand typically elevates homebuying activity. The recalibrated tax structure, with its streamlined slabs and distinct cost incentives for construction inputs, draws both developers and buyers into a new era of opportunity – tempered, of course, by the nuances of market adaptation and persistent supply-side constraints.

Shifting Cost Structures and Project Budgets
GST 2.0 rationalises tax rates from five to four slabs, substantially reducing GST on essential construction materials like cement (now 18%, down from 28%) and bricks and tiles (down to 5% from 18%). As construction inputs account for over half of a project’s costs, this reform brings a tangible easing of budget pressures for developers across asset classes. According to Savills India, GST savings per square foot should range from INR 120 to 155 for affordable housing and up to INR 220 for luxury residential segments. These reductions are expected to decrease overall construction costs by 4.3 to 4.4% for affordable and mid-segment homes and 3.7% for luxury housing. For offices, manufacturing, and warehousing, the cost reductions should improve investor interest and capex efficiency, with construction cost declines of up to 3% for Grade-A offices and 2.6% for warehousing.

Buyer Affordability and the Demand Cycle
The reform delivers a direct boost to homebuyer affordability, particularly in the affordable and mid-housing segments where both lower GST rates on purchases (1% for affordable, 5% for others) and construction cost savings converge. As the festive season traditionally spurs property transactions, enhanced affordability and more competitive pricing can catalyse additional demand, supporting sustained market momentum. The transition should ease home loan needs and improve value for money for buyers, while developers will see improved liquidity and working capital, enhancing their ability to offer site-ready inventory within shorter timelines.

Developer Margins and Festive Strategy
Lower input costs, higher margins, reduced working capital needs, and accelerated project completion are pronounced outcomes for developers under GST 2.0. These improved financial fundamentals are especially crucial during peak sales cycles such as the festive period, when pricing strategies face renewed consumer scrutiny. For developers, aligning compliance processes and product pricing with the new GST regime is critical, not only to pass on the benefits transparently to buyers, but also to preserve long-term project feasibility in the face of lingering material price volatility and evolving compliance demands. Notably, while cost relief is significant, it is the adaptability to new compliance systems and proactive strategic adjustments that will ultimately determine success.

Navigating the New Landscape
GST 2.0’s success for real estate hinges on how well stakeholders navigate the trade-off between short-term incentives and long-term structural adaptation. Regional project viability will reflect greater uniformity in tax treatment and likely see improved affordability and momentum in sales during the festival season. But the creation of a more transparent, efficient, and predictable tax environment is not just about immediate cost reduction – it is about empowering developers to respond more agilely to demand surges and rising buyer expectations, solidifying sustainable growth even as policy fine-tuning continues.

By Srinivasa Reddy, Director - Research & Consulting, Savills India