The upcoming presentation of the Union Budget 2024-25 on July 23rd has sparked optimism within the real estate sector regarding the Modi 3.0 regime. Anticipation is mounting for potential tax reliefs and other measures to boost market sentiment. The future of the industry hinges on unimpeded infrastructure development to enhance urban living standards and foster the growth of new areas.
Will the government accede to the longstanding request for industry status for the entire housing sector? Will it implement effective measures to revitalize the affordable housing segment, which has been in decline since the onset of the pandemic? Industry experts continue to ponder over these questions.
“The real estate market in India has shown strong performance in 2024 so far, as evidenced by the increasing number of housing sales and new projects in the top 7 cities. Sales have hit a record high of approximately 493,000 units in the fiscal year 2023-2024, while 447,000 units were launched. It is crucial for this positive trend to be sustained in the coming years, especially since the current growth pattern is more focused on mid-range and luxury housing. In order to address the housing needs of lower-income groups in India, there must be a concerted effort to promote affordable housing alongside the high-end market segment,” says Anuj Puri, Chairman, ANAROCK Group.
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Numerous incentives that used to be available to buyers and developers of affordable housing have lapsed within the past two years. So, it is crucial to rejuvenate this significant sector through impactful actions such as providing tax incentives to developers to encourage their focus on affordable housing, as well as offering tax breaks to buyers to enhance affordability.
The industry expects a strong focus on infrastructure and innovation to tackle the housing shortage in both rural and urban areas, especially through programs aimed at improving rental housing.
“Potential tax relief, such as changes to income tax exemption limits in the new tax system, could greatly benefit low-income earners. Adjustments to income tax brackets for individuals earning between Rs 5 lakh and Rs 15 lakh annually are expected to increase spending power and stimulate economic activity, which is crucial for the middle class. We also predict further support for the affordable housing sector through reinstated PMAY incentives, while GST reforms will be essential for ensuring nationwide accessibility. The budget is likely to maintain its focus on sustainable development and green innovation, promoting environmentally-friendly practices in infrastructure projects,” says Arvind Nandan, Managing Director – Research & Consulting, Savills India.
Looking ahead to the forthcoming budget for 2024-25, there is a clear opportunity to reshape the trajectory of India’s real estate sector.
“An important aspect is the necessity for increased tax benefits for homebuyers and investors. We call upon the government to contemplate raising the deduction limit for interest on home loans from the current Rs 2 lakh to Rs 5 lakh annually, a move that could significantly enhance housing demand. Furthermore, reducing the GST on under-construction properties and adjusting raw material prices would serve to further stimulate the market. These adjustments are not only crucial for revitalizing the sector but also for boosting demand in around 250 associated industries,” says Mohit Goel, Managing Director, Omaxe.
The sector also requires improved ease of doing business for developers, which would foster a more favorable investment environment. “Addressing liquidity issues, simplifying regulations, and providing increased funding for affordable and mid-income housing are vital to promoting sustainable growth. Streamlining approval processes and advancing the digitization of land records would lead to substantial reductions in project delays, benefiting both developers and end-users. On the commercial front, incentivizing green building practices and sustainable infrastructure development is imperative for driving urban renewal and attracting additional investment,” Goel adds.
Vikram Singh, President, Central Park, says, “We are optimistic to see certain positives from the upcoming budget for the luxury real estate sector. The current boom in this market reflects the increasing demand from affluent buyers who are looking for elegant residences with modern amenities and exquisite design. The sector’s upward trajectory is further amplified by the continued urbanisation and growing disposable incomes. Moreover, streamlining regulatory approvals for high-end projects would significantly enhance operational efficiency and boost investor confidence, which are both essential for sustained growth in the realty market. Overall, the real estate sector hopes the budget will promote growth, encourage investment and make home buying altogether more accessible.”
Enabling Indian investors to engage more extensively in global markets is also the need of the hour.
Ritu Kant Ojha, CEO of the Dubai-based Proact Luxury Real Estate, says, “We expect that the forthcoming Union Budget will introduce changes that will enable Indian investors to engage more extensively in global markets. The current 20% Tax Collected at Source on foreign real estate investments, as mandated by the Liberalised Remittance Scheme, limits their ability to take advantage of international opportunities. Reducing this rate to 5% would not only expand the amount of capital available but also facilitate wider portfolio diversification overseas, thereby enhancing India’s presence in international markets. These adjustments are crucial as we strive for a $5 trillion economy and endeavor to harmonize with the tax regulations of developed countries.”
The forthcoming budget has the potential to significantly impact the affordability of Indian real estate.
“With a shortage of 29 million units, 90% of which are in the affordable housing segment, we anticipate substantial measures to stimulate supply and demand. Additionally, the proposed increase of tax rebate on interest on housing loan under Section 24 of the Income Tax Act will facilitate easier access to home ownership for the middle class. Furthermore, granting industry status to the entire real estate sector, not just affordable housing, could reduce borrowing costs by 2-3 percent, potentially leading to lower home prices. Given that India’s urban population is projected to reach 600 million by 2030, the budget should establish a foundation for sustainable and affordable urban housing growth,” suggests LC Mittal, Director, Motia Group.
Gunjan Goel, Director at Goel Ganga Developments, says, “The real estate industry is currently facing a crucial moment, with the budget having the potential to greatly impact affordability. We are seeking solutions to tackle the liquidity challenges that developers are experiencing, resulting in the halt of numerous projects. The SWAMIH fund has already approved Rs 12,000 crore for 130 projects, highlighting the need for more effective mechanisms. Extending the CLSS scheme will undoubtedly boost demand for affordable housing. With recent data showing a 5% year-on-year decrease in housing sales in major cities, it is imperative to implement strong fiscal policies to rejuvenate the sector. One such policy could involve raising the price limit to ₹45 lakh for metro cities, enabling more projects to qualify for lower GST rates and additional subsidies for developers and homebuyers.”
The impact of the Budget on real estate affordability will largely depend on its effectiveness in addressing supply- and demand-side challenges.
“Streamlining approval processes and reducing the number of permits required, which currently stands at around 35, can significantly cut project timelines and costs. On the demand side, revising the cap on capital gains tax exemption for reinvestment in two houses will provide a boost, particularly for Metro markets experiencing higher prices. With the real estate sector’s contribution to GDP at 6-7%, projected to reach $1 trillion by 2030, budgetary support is crucial. Additionally, the GST input tax credit for under-construction properties has the potential to lower house prices by 5-7%, making homeownership more attainable for many,” says Aman Gupta, Director, RPS Group.