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The Indian government’s ‘Next-Gen GST Reforms’ are scheduled to take effect on Monday, September 22, 2025. Approved by the GST Council led by Finance Minister Nirmala Sitharaman, the reforms streamline the tax structure.
These reforms simplify the Goods and Services Tax structure by reducing the number of slabs from four to three: 5%, 18%, and 40% for luxury goods. Notably, the GST rate on cement has been reduced from 28% to 18%, while taxes on materials like marble, granite, and bricks have decreased from 12% to 5%.
Impact on Construction Costs
The reduction in GST rates on key construction materials is expected to lower overall construction costs by approximately 3–5%. For instance, the cost of cement for a typical home construction project could decrease by Rs. 10,000, translating to significant savings for builders and, potentially, homebuyers.
This cost reduction is particularly beneficial for developers of mid-size housing projects, which are poised to gain the most from the GST rationalization due to their balanced scale and cost sensitivity.
Benefits for Homebuyers
For prospective homeowners, especially first-time buyers, the GST 2.0 reforms offer substantial financial relief. With lower construction costs, developers may pass on these savings, potentially reducing home prices by 5–8% in the affordable housing segment.
This reduction could make homeownership more accessible to middle-class families and individuals, aligning with the government's goal to address the housing shortage in urban areas.
Challenges and Considerations
While the GST 2.0 reforms present numerous advantages, challenges remain. Rising labour charges and contractor margins, which can constitute up to 60% of a construction project's budget, are not directly impacted by the GST cuts.
Additionally, state-level levies such as stamp duty and registration fees may offset some of the benefits of the GST reductions. For example, in Karnataka, stamp duty has increased from 5% to 6%, and registration fees have doubled to 2%, potentially diluting the impact of the central GST reforms.
Outlook for the Housing Market
The timing of the GST 2.0 reforms coincides with the festive season, traditionally a period of increased consumer spending. This alignment is expected to stimulate housing demand, particularly in the affordable segment, where price sensitivity is high. Developers are anticipated to launch new projects and offer promotional incentives to attract buyers, further boosting market activity.
The implementation of GST 2.0 marks a pivotal moment for India's real estate sector. By reducing construction costs and simplifying the tax structure, the reforms aim to make housing more affordable and stimulate demand, particularly in the affordable housing segment.
While challenges such as rising labour costs and state-level taxes persist, the overall outlook for the housing market remains positive, with expectations of increased activity and investment in the coming months.
