GST 2.0: Affordable Housing Gains Momentum, But Key Challenges Remain

The recently introduced GST 2.0 reforms are being hailed as a significant development for India’s construction and housing sector. Industry experts believe that the continuation of the concessional 1% GST rate for affordable housing, along with reduced input costs, will provide a strong push to affordable and mid-income housing segments. This is especially relevant for tier-2 and tier-3 cities, where demand for housing remains robust and many projects had stalled due to thin margins.

With housing acting as a catalyst for job creation, the reforms are expected to contribute meaningfully towards India’s target of generating 100 million jobs by 2030. Affordable housing projects, in particular, could emerge as a major driver of both employment and economic growth, giving the sector the much-needed momentum to recover from prolonged structural hurdles.

However, the path to success is not without challenges. Experts caution that the actual pace of benefits will depend on how quickly the supply chain adjusts its pricing structure. While manufacturers may adapt faster, the fragmented nature of the supply network could delay the full benefits reaching developers and end consumers. Rising labour costs further add to the pressure, offsetting some of the material cost advantages brought by GST reforms.

Transparency also remains a concern. Unless competitive pressures ensure that cost benefits are passed on, there is a risk that gains may be absorbed by higher margins rather than reducing project costs for buyers. For the commercial construction sector, the standard 18% GST rate brings clarity, but projects that earlier enjoyed 12% face cost escalations, requiring developers to rethink procurement strategies.

For these reforms to succeed, experts stress the importance of effective ground-level implementation. Developers must adapt by revising contracts, renegotiating supply agreements, and ensuring tax clauses are integrated into future deals. If executed well, GST 2.0 could transform India’s construction sector into a more transparent, efficient, and consumer-friendly industry.