How Aug–Sep 2025 GST and RERA Changes Are Shaping Developer Profits

Recent RERA and GST updates in August–September 2025 have broadly stabilized developer margins. GST reforms simplified tax slabs into 5% and 18%, reduced raw material costs, and improved pricing transparency, which supports residential developers. However, the denial of Input Tax Credit (ITC) on commercial leasing projects is compressing margins for office and retail developers. RERA’s regulatory clarity continues to boost investor and buyer confidence by reducing the risks of delays and litigation.

What are the key GST updates introduced in Aug–September 2025?

The government rationalized GST into two slabs, 5% and 18% while reducing tax rates on cement and steel, but removed ITC benefits for commercial leasing.

These reforms are among the most significant changes since GST’s introduction in 2017. The two-slab system has replaced multiple intermediate slabs (12% and 28%), bringing much-needed simplicity and predictability to real estate taxation. Developers now have a clearer cost structure and can price projects more transparently for buyers.

Key GST Reforms in 2025:

• Two-slab regime: 5% (affordable housing & essentials) and 18% (other categories).
• Input tax credit denial: Developers cannot claim ITC on immovable property construction for leasing.
• GST cuts on inputs: Cement reduced from 28% → 18%; steel from 18% → 12%.

This mix of benefits and challenges is pushing developers to rethink pricing strategies, especially for commercial leasing, while offering relief for housing projects.

How does GST slab rationalization affect residential developers’ margins?

For residential developers, the GST slab rationalization improves liquidity, reduces compliance burdens, and enhances buyer sentiment, supporting healthier margins.

By moving to a simpler two-slab system, developers can more easily communicate project pricing to customers. Buyers benefit from transparency, while developers enjoy better cash flows thanks to reduced disputes over tax rates.

Benefits to Residential Developers:

1. Simplified pricing: Buyers can compare projects more easily, improving sales velocity.
2. Liquidity gains: Faster sales cycles mean more cash for project reinvestment.
3. Margin support: Lower raw material taxes provide 2–4% savings in construction costs.

Example: A mid-segment housing project in Ahmedabad priced at ₹60 lakh may now save around ₹1.5–2.5 lakh in construction costs due to lower input GST. This saving allows developers either to pass benefits to buyers (boosting demand) or retain margins.

How does the denial of ITC affect commercial real estate developers?

The denial of Input Tax Credit (ITC) has increased costs for commercial leasing, squeezing margins and making sales-driven models more attractive.

Earlier, commercial developers offset GST paid on construction inputs (cement, steel, labour contracts) against their GST liabilities on lease rentals. Now, without ITC, the effective cost of developing commercial assets has risen.

Impacts on Commercial Developers:

• Higher lease rentals: Developers may pass costs onto tenants, raising rents 5–7%.
• Lower profitability: Margins shrink, especially for Grade A office and mall projects.
• Shift to sales model: More developers may prefer selling commercial spaces rather than leasing.

Case in point: In Gurgaon, pre-ITC removal, the effective construction cost per sq. ft. for Grade A office was around ₹4,500. Without ITC, costs rise to ₹4,800–5,000, pressuring leasing returns.

How do GST cuts on raw materials help developers?

The reduction of GST on cement (28% → 18%) and steel (18% → 12%) provides marginal cost relief, lowering construction costs by 2–4%.

Construction costs had risen nearly 40% in the past five years due to inflation in cement, steel, and labour wages. These cuts help developers regain partial control over costs.

Savings Snapshot (per 1 lakh sq. ft. project):

While this doesn’t offset all inflationary pressures, it improves affordability in mid-segment and affordable housing segments that contribute to maximum demand absorption in 2025.

How do RERA updates support developer margins?

RERA’s continued focus on compliance and transparency reduces litigation and project delays, indirectly protecting developer margins.

In 2025, several state RERA authorities tightened reporting compliance and introduced faster grievance redressal systems. Developers adhering to these updates enjoy smoother project approvals and improved buyer confidence.

Benefits of RERA Alignment:

• Reduced delays: Faster dispute resolution lowers carrying costs.
• Investor trust: Transparency attracts institutional and NRI investors.
• Market discipline: Non-compliant developers find it harder to operate, improving competition quality.

For example, Maharashtra RERA’s new compliance dashboard allows real-time project monitoring, which reduces uncertainty for both buyers and developers.

Comparison: Residential vs Commercial Impact of 2025 Updates

What is the overall impact on developer margins in 2025?

Residential developers are expected to see stable or improved margins, while commercial developers face margin compression due to ITC denial.

• Residential: Demand revival, lower construction input costs, and simplified taxation strengthen financial stability.
• Commercial: Higher effective costs and reduced ITC benefits challenge leasing models, though strong occupier demand in IT/retail hubs may cushion the blow.

Key Takeaways (In Short)

• ✅ GST rationalization (5% & 18%) simplifies taxation, improves liquidity.
• ✅ No ITC for leasing raises costs for commercial developers.
• ✅ Cement & steel GST cuts reduce construction costs by 2–4%.
• ✅ RERA compliance lowers litigation and delays, boosting trust.
• ✅ Residential developers benefit more; commercial developers face tighter margins.

Not significantly, while input costs are lower, rising demand and land prices may keep property values steady or rising.

The Takeaways

The recent RERA and GST updates of Aug–Sep 2025 mark a turning point for Indian real estate. By simplifying taxation, cutting input costs, and reinforcing regulatory compliance, the government has provided much-needed support to residential developers. However, commercial developers must navigate challenges from the ITC denial on leasing, which pressures margins. Overall, these reforms are reshaping business models, pushing developers to adapt strategically.