India's real estate sector is poised for a significant transformation as the government prepares to implement major Goods and Services Tax (GST) reforms, scheduled to take effect on September 22, 2025. These changes are expected to have far-reaching implications for various segments of the real estate market, from residential to commercial and retail properties.

Simplified Tax Structure

The cornerstone of the GST 2.0 reforms is the simplification of India's tax structure. The current system of five tax slabs will be streamlined into two primary slabs:

• 5% for essential goods and services
• 18% for most other items

Additionally, a 40% tax rate will be applied to luxury goods, maintaining a progressive taxation approach.

Positive Impact on Residential Real Estate

The residential sector stands to benefit significantly from these reforms:

• Construction costs are projected to decrease by 3-5% due to lower GST rates on key materials such as cement.
• This reduction in costs could potentially revive demand in the affordable housing segment, which has seen a decline in recent years.

Affordable Housing Market Trends

The affordable housing sector has experienced a notable shift in recent years:

This data highlights the pressing need for initiatives to reinvigorate the affordable housing market, making the GST reforms particularly timely.

Mixed Implications for Commercial Real Estate

The commercial real estate sector faces a more complex scenario:

• Developers will lose eligibility for Input Tax Credit on property leasing, potentially leading to increased operational costs.
• This change may result in higher rental prices for commercial properties.
• The introduction of the Reverse Charge Mechanism will require tenants to pay 18% GST when leasing from unregistered suppliers, adding a new layer of complexity to commercial leasing transactions.

Boost for Retail Real Estate

The retail real estate segment is expected to see positive outcomes:

• Lower construction costs will benefit new retail developments.
• Streamlined supply chains should improve operational efficiency.
• However, rental income from retail properties will continue to be subject to 18% GST.

Long-term Goals and Challenges

The GST 2.0 reforms aim to achieve several long-term objectives for the Indian real estate sector:

• Increased transparency in transactions
• Reduced compliance burdens for businesses
• Attraction of more institutional investment into the sector

These reforms come at a critical time, as India faces significant housing challenges:

• Current urban housing shortage: 1 crore homes
• Projected shortage by 2030: 2.5 crore homes

Conclusion

The upcoming GST reforms represent a significant shift in India's taxation landscape, with potentially far-reaching effects on the real estate sector. While the residential and retail segments are poised to benefit from reduced construction costs and simplified tax structures, the commercial real estate market may face new challenges. As the implementation date approaches, stakeholders across the industry will be closely monitoring these changes and adapting their strategies to navigate the evolving regulatory environment.

The success of these reforms in addressing India's housing shortage and attracting investment will be crucial in shaping the future of the country's real estate market. As the sector prepares for this transformation, the coming months will be critical for businesses and policymakers alike in ensuring a smooth transition to the new GST regime.

The Indian real estate sector has undergone a significant transformation over the past two decades, evolving from an opaque and risky investment to a stable and globally relevant asset class, according to Rohit Kishore, CEO of Hero Realty. This shift has been driven by a combination of economic growth, regulatory reforms, and increased institutional participation.

Sustained Economic Growth and Regulatory Reforms

India's consistent GDP growth of over 6% annually has been a key factor in the real estate sector's evolution. This economic expansion has been complemented by crucial regulatory reforms, including:

• The Real Estate (Regulation and Development) Act (RERA)
• The introduction of Goods and Services Tax (GST)
• The establishment of Real Estate Investment Trusts (REITs)

These measures have significantly enhanced transparency and investor confidence in the sector.

Rising Global Investor Interest

The transformation of Indian real estate has attracted major global investors. Kishore highlighted that firms like Blackstone and Brookfield have become significant players in the market. Notably, Blackstone has participated in four out of the five listed REITs in India, underscoring the sector's growing appeal to international institutional investors.

Infrastructure Development Driving Demand

Infrastructure projects are reshaping demand patterns in the real estate market. Kishore pointed out that expressways such as the Dwarka Expressway and the Delhi-Mumbai Expressway are creating opportunities in non-traditional locations. Additionally, metro connectivity is driving 20-30% higher capital appreciation in areas it serves.

Hero Realty's Focus and Market Observations

Hero Realty primarily concentrates on tier-1 cities but remains open to opportunities in key tier-2 cities like Lucknow, the Tri-City region, and Jaipur, as well as NCR satellite towns. The company has observed increasing customer aspirations for high-quality products.

Current Market Trends

Kishore noted that residential demand remains resilient. Office REITs continue to outperform and attract strong investor interest, further solidifying the sector's position as a stable investment destination.

The transformation of Indian real estate into a de-risked, global asset class marks a significant milestone for the sector. With continued economic growth, regulatory support, and increasing global investor participation, the Indian real estate market appears poised for sustained growth and development in the coming years.