By – Akash Pharande, Managing Director – Pharande Spaces
India’s housing sector stands at a critical juncture as two major policy shifts — the upcoming GST reforms and the 50% US tariffs on Indian goods — stand as opposing forces that can potentially reshape demand, affordability, and supply of housing. While the GST reforms promise relief via lower input costs, the tariffs threaten to dampen these gains. This will impact different housing segments to varying extents.
GST Reforms – Limited Relief
The government’s proposed GST simplification into two primary slabs of 5% and 18%, expected to be announced this Diwali, will deliver targeted benefits for the residential property sector. The most notable impact comes from lowering GST on cement from 28% to 18%, because this would reduce developers’ input costs by about 10%. However, the ‘real’ benefits will vary significantly across housing segments.
Affordable housing, currently taxed at just 1%, will not see much of an direct impact. However, it does stand to gain from lower input costs if Input Tax Credit (ITC) is restored. This would potentially reduce property prices in this vital housing segment by 2-4%. In the mid-segment housing sector, a potential GST reduction from 5% to 3% would mean that prices could possibly reduce by around 2-3% if developers pass the benefit on to their buyers.
Luxury housing, on the other hand, presents a very different and possibly challenging scenario. This is because high-end residential real estate by definition involves high-end materials, which would potentially stand to be taxed at the proposed 40% tax rate (the so-called ‘sin tax’ slab). In other words, there would be little meaningful price relief for luxury homebuyers. They are not necessarily as price-sensitive as buyers of affordable and mid-range properties, but they are still people who became wealthy because smartly counting costs is second nature to them.
Tariff Threat – The Bigger Burden
The 50% tariffs that the US has imposed on Indian exports has created a complicated and worrisome situation for the Indian housing industry as a whole. No doubt, they mainly target exports, but they still create a notable ripple effect on the cost of construction, and therefore on overall affordability via multiple channels.
Construction materials now face a lot of pressure. Steel, aluminium and copper are important materials in housing, and they are all subject to the 50% tariff. A rough calculation suggests that they can raise project costs by anywhere between 1.5-2.5% for basic construction materials, and up to 5% or even more for luxury projects which use a lot of imported materials and fittings. The construction equipment industry, which has already been facing supply chain constraints because of the geopolitical environment, faced cost hikes of between 3-5%.
Even more importantly, this unprecedented tariff burden impacts jobs in the all-critical SME and MSME industries. As has been pointed by by ANAROCK Property Consultants, employees from these sectors are the main buyers of affordable housing. This impact on demand will be more severe than the supply-side cost impacts because lower purchasing power directly affects homebuyer sentiment and housing sales.
Market Conditions – Advantage Luxury
For developers, the current market environment heavily favours premium and luxury real estate because cost pressures have made affordable housing an untenable play for any but smaller local builders. On the supply side, the share of affordable housing has nosedived from 40% in 2019 to just 12% in H1 2025 as per data from ANAROCK, while homes priced above Rs. 1 Cr have hogged almost 50% of overall housing sales.
The cost of construction has risen by 40% since 2019, with the highest rise of 27% happening between 2021 and 2024. Labour costs have increased by as much as 150% since 2019, with a 25% increase in just the last one year. The rising cost of construction – and now the tariff pressures on top of them – are pushing developers to concentrate on premium housing projects where profit margins are higher and cost increases are more easily absorbed by buyers.
Will GST Reforms Save the Day?
Unfortunately, no. The fact is that GST reforms simply do not provide enough relief to fully set off the cost pressures of the tariffs.
In the case of affordable housing, GST benefits of 2-4% more or less even out the impact of the 2-3% tariffs impact, so the end calculation is neutral or marginally positive. In the mid-segment housing sector, the end-result is similarly neutral
Luxury housing will face a net negative impact of 3-5% since imported luxury materials and fittings must contend with both the steepest tariff burden and highest GST.
The above does not even factor in the tariff’s overall economic impacts. The 50% tariffs will impact India’s export relationship with the US, and this will add pressure on GDP. At least or a while, the job market may weaken to some extent, which will obviously leave a mark on the residential market. The Indian government’s strong measures to counter these impacts will help, but a period of slower growth still seems inevitable.
Winners & Losers
Suppliers of construction materials have some reason to cheer. They have less competition to worry about since imports will become less attractive, but local capacity colimitations will curtail this advantage to a significant extent. Large developers with diversified portfolios and strong balance sheets can absorb higher costs more efficiently, and these players will focus more on the luxury segment. Smaller players who typically develop affordable housing will face even more difficulties as margins become even narrower and construction costs increase..
For homebuyers, it is a mixed bag depending on which kind of homes they want to buy. Luxury housing buyers will pay higher prices but can mostly afford to, but first-time buyers who typically look at budget homes will be looking at less availability of options and bigger price tags.
Given these realities, homebuyers should:
- Be strategic – For instance, the ongoing festive season will come with more launches and attractive discounts and offers. Mid-segment homebuyers can possibly expect a short opportunity window between GST reform implementation and the full impact of the tariffs.
- Focus on the right properties – Ready-to-move properties completely eliminate GST and can possibly provide better value if the developer is focusing on liquidating his inventory before cost hikes kick in fully. On the other hand, under-construction mid-segment homes may benefit from the GST reforms and also not be impacted much by the tariffs. A calculated approach and sufficient research are keys to securing the best deal.
- If buying for investment – Choose the right city and location. Tier 2 and some tier 3 cities, as well as peripheral locations around the major urban centres, can be better value propositions.
- Prepare financially – Construction costs will not go down and affordable housing supply will not increase anytime soon. Getting pre-approvals on home loans can be critical in nailing down a good option when it materializes. They may also need to stretch their budgets beyond what they had previously envisaged.
The GST reforms will not bring a big breather to homebuyers, because lower cement prices and compliance costs will not completely eliminate the impact of the tariff-driven cost hikes. Fair or foul, the market has clearly side-lined mid-range and affordable housing buyers, who are also contending with higher costs of living. From the latter perspective, the GST reform is obviously a very welcome step.
There is a narrow band of time between now and the full onslaught of tariff impacts where many developers are clearing existing supply before launching new projects – at higher rates. More than ever before now, and specifically the ongoing festive season with its many deal sweeteners, is the time for serious buyers to act.
