GST on rental housing: New rules to adversely impact co-living and student housing segments

The recent changes in GST have created ripples across consumer segments. While rates have been revised for certain articles, many items, which were earlier outside the list, were brought under GST.

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Two newly-included items are significant for the real estate sector. One is the introduction of 12% GST on boarding and lodging for a tariff below Rs 1,000 per night. The second is the imposition of 18% GST on residential rental, for tenants with GST numbers. Both would significantly impact the rental housing market, particularly the co-living and student housing segment.

Also read all about GST on flat purchase

GST on rent: Students may seek money-saving options

Several student housing players operate under the Boarding and Lodging category, where the monthly charges range from Rs 10 to Rs 15,000. In other words, they would fall under the category of ‘less than Rs 1,000 daily’ and were previously exempted under GST. With the new rule, the additional cost of 12% would either be absorbed by the students or by the service provider. Either way, it will impact the operating margin for the players. How this rule will impact academic institutions that offer hostel facilities, is yet to be seen. However, it will certainly skew the market, as students would look for money-saving options.

Read about : GST login portal

See also: 18% GST on residential property rental applicable to GST-registered entities, persons

GST on rent to hamper rental housing from becoming an organised sector

Several co-living players rent out apartments from individual landlords. Since they have a GST number, they will be required to pay an additional 18% GST, which may become unsustainable for their business. In India, the rental yield on residential properties is merely 2%-3%. As a result, the penetration of the organised sector and the participation of institutional investors in residential rental housing, is minuscule. On average, 28% of urban dwellers live in rental housing and states like Tamil Nadu, Andhra Pradesh and Karnataka witness numbers above 40%. The introduction of GST would intimidate many institutional players and dampen the effort to convert residential rental housing into an organised sector. The Ministry of Housing and Poverty Alleviation recognised the need to provide affordable rental housing for poor urban migrants and initiated the Affordable Rental Housing Complex (ARHC) programme across all cities, under public-private participation. However, bringing residential rentals under GST will create distortion and would undoubtedly deter the private sector from participating in the scheme.

Also read: GST on residential rent to dampen rental housing market

Rental housing segment hoping for GST concessions

At the moment, the industry is looking at various options to make a case for certain concessions. Student housing operators argue that a hostel is an integral part of academics and hence, any premises taken on rent for accommodating students should be exempted or, at least, be brought under the 5% category. Some are exploring the option of collecting and passing on the rents directly to the landlord and charging GST only on the services to reduce the impact. Others are contemplating switching over to the Boarding and Lodging category with 12% GST.

As of now, everyone is in an exploratory mode and waiting to see if any relief measures will be provided by the government.

(The writer is managing director, advisory services, at Colliers)

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