Will the GST Cut on Cement Save India’s Struggling Affordable Housing Market?

Over the past few years, affordable housing in India has gone from being a policy darling to a troubled segment. Once hailed as the backbone of urban growth, it’s now facing declining supply, waning buyer interest, and squeezed developer margins. In this context, the government’s recent move to reduce GST on cement from 28% to 18% has sparked cautious optimism but is that enough to revive the sector?

Let’s unpack what this tax cut really means for builders, buyers, and the broader real estate ecosystem.

Cement is one of the most essential and expensive raw materials in construction. Whether it’s a large housing society or a modest two-bedroom home, cement costs typically make up 10% to 35% of the total construction budget.

For years, industry players had been urging the government to reclassify cement under a lower GST bracket. The tax rate of 28% placed cement in the same category as luxury goods, which made little sense for an item as foundational as this. With the recent reduction to 18%, there's finally a break in the clouds.

According to analysts, this move could lower construction costs by 3% to 5%, particularly in affordable housing projects where material costs are tightly controlled. That might sound small, but in a price-sensitive market, even minor reductions can tip the scale for buyers on the fence.

How Does This Help Affordable Housing Specifically?

Affordable housing projects typically run on very thin profit margins. Unlike luxury or premium real estate, developers in this segment can’t charge premium prices or pass on rising input costs to buyers without risking demand. For them, every rupee saved on construction materials can go a long way.

• Lower input costs mean more viable projects. Developers can now reconsider launching affordable housing projects that were previously shelved due to budget constraints.
   
• It may give a slight nudge to housing prices. While developers aren’t expected to pass the entire benefit to homebuyers, a reduction of 2% to 4% in selling prices is on the cards, especially in metro outskirts and Tier-2 cities.
   
• More units could hit the market. With lower costs, developers may be encouraged to build more, potentially easing the supply crunch that has plagued the segment since the pandemic.
   

Why the Affordable Housing Segment Needed This Push

To understand why this tax relief matters, consider the numbers. In 2019, affordable homes made up nearly 38% of all residential sales in India. By mid-2025, that share had dropped to just 18%. At the same time, new launches in this category have slowed to a trickle only 12% of total new supply in H1 2025 came from affordable housing.

Multiple factors are to blame rising land costs, expensive materials, tight regulations, and diminishing subsidies. While interest rates have remained relatively stable, overall buyer sentiment in the lower-income bracket has taken a hit.

In that context, the GST cut isn’t just a tax tweak it could be the confidence booster the segment needs.

The Real Impact Depends on More Than Just Cement

Of course, a single policy move won’t turn the market around overnight. There are several factors that could dilute the impact of the GST cut:

• State-level taxes could cancel out the benefits. In places like Karnataka, for instance, stamp duties have recently gone up from 5% to 6%. Registration charges are also on the rise. These local levies could negate any savings from lower GST.
   
• Not all cost savings may be passed on to buyers. Cement manufacturers are expected to drop prices by ₹25–₹30 per bag, but whether this flows through to the end consumer depends on how much developers choose to absorb and how competitive their markets are.
   
• Other construction materials still cost a lot. While some finishing materials like granite, tiles, and marble have also seen GST reductions (down to 5%), steel, labour, and logistics costs remain elevated.
  
   

Timing Matters: Festive Season Could Amplify the Effect

The timing of this tax cut couldn’t be better. With the festive season around the corner, a time when many Indians consider making large purchases like homes, the reduced cost structure could act as a catalyst for both buyers and developers.

Builders may use the opportunity to offer limited-period discounts, and buyers, especially first-timers, could find just enough incentive to take the plunge.

Let’s be realistic, it's not a magic wand, but it is a meaningful step in the right direction.

Think of the GST cut as a pressure release valve. It won’t solve all the structural issues plaguing affordable housing, but it does reduce one of the most significant cost burdens for developers. It also signals that the government is willing to listen and act when industries raise legitimate concerns.

For affordable housing to truly rebound, though, this tax cut needs to be supported by:

• Faster project approvals
   
• Better access to subsidized credit for both developers and buyers
   
• Rationalization of stamp duties and local levies
   
• Continued policy incentives under schemes like PMAY