Union Budget 2024-25: What Does the Real Estate Sector Expect?
The Union Budget is a significant event in India’s economic calendar, shaping policies and allocations that affect various industries. For the real estate sector, the Union Budget 2024-25 holds immense importance as it is one of the pillars of the Indian economy, contributing about 7% to the GDP and generating employment for millions. As we approach the announcement, stakeholders in the real estate industry are keenly looking forward to reforms, incentives, and investments that can bolster growth, promote affordable housing, and streamline regulatory processes.
This article delves into the key expectations of the real estate sector from the Union Budget 2024-25, highlighting areas of improvement and potential measures that can stimulate the industry’s growth.
1. Enhanced Tax Benefits for Homebuyers
One of the long-standing demands of the real estate sector is the enhancement of tax benefits for homebuyers. With rising property prices and inflationary pressures, the current tax exemptions under Section 80C for home loan principal repayment and Section 24(b) for interest payment are deemed insufficient.
What the Industry Expects:
Increase the limit under Section 24(b) for interest deduction from the current cap of ₹2 lakhs to ₹3 lakhs or more.
Introduce a separate tax deduction limit for housing loan principal repayment, independent of the ₹1.5 lakh cap under Section 80C.
Provide additional tax relief for first-time homebuyers to encourage homeownership.
Impact of Enhanced Tax Benefits:
These measures will increase affordability for homebuyers, particularly in the mid-income and affordable housing segments. They will also stimulate demand in the residential real estate market.
2. Boosting Affordable Housing
Affordable housing has been a focal point for successive governments, given its role in fulfilling the “Housing for All” mission. However, challenges such as high construction costs and limited financial support continue to hinder progress in this segment.
What the Industry Expects:
Increase the allocation for the Pradhan Mantri Awas Yojana (PMAY) to accelerate affordable housing development.
Provide tax incentives for developers engaged in affordable housing projects.
Extend the benefits under Section 80-IBA, which offers tax deductions for affordable housing projects, beyond the current deadline.
Reduce GST rates for affordable housing from 1% to 0% to make homes more affordable for buyers.
Impact on Affordable Housing:
An increased focus on affordable housing will encourage developers to invest in this segment, benefiting both homebuyers and the overall economy. It will also address the urban housing shortage and support low-income families.
3. Single-Window Clearance System
Delays in project approvals remain one of the biggest hurdles for real estate developers. Multiple clearances from different authorities lead to time and cost overruns, affecting project viability and delivery timelines.
What the Industry Expects:
Implement a single-window clearance system to streamline approval processes.
Digitize land records and approval mechanisms for greater transparency and efficiency.
Standardize regulations across states to reduce complexity for developers operating in multiple regions.
Impact of Single-Window Clearance:
A streamlined approval process will reduce project timelines and costs, enabling developers to deliver projects faster and at competitive prices. It will also encourage greater investment in the sector.
4. Addressing Liquidity Challenges
The real estate sector has been grappling with liquidity issues, particularly in the wake of the COVID-19 pandemic. Access to finance remains a critical challenge for developers, especially smaller players.
What the Industry Expects:
Set up a dedicated real estate fund to provide low-cost financing to developers.
Relax lending norms for banks and NBFCs to extend credit to the real estate sector.
Introduce measures to resolve stressed assets and stalled projects through platforms like SWAMIH (Special Window for Affordable and Mid-Income Housing).
Impact of Improved Liquidity:
Access to affordable financing will help developers complete stalled projects, improve cash flow, and undertake new developments. This will restore buyer confidence and boost overall market sentiment.
5. Incentives for Green and Sustainable Construction
As the world moves towards sustainable development, the real estate sector is increasingly adopting green building practices. However, the high costs associated with sustainable construction often deter developers from fully embracing these practices.
What the Industry Expects:
Introduce tax incentives and subsidies for green building projects.
Provide low-interest loans for developers incorporating eco-friendly construction practices.
Offer additional Floor Area Ratio (FAR) for projects that meet green building standards.
Encourage the adoption of renewable energy sources in real estate developments.
Impact of Green Initiatives:
Promoting sustainable construction will align the real estate sector with global environmental goals while reducing operational costs for developers and homeowners. It will also enhance the appeal of green-certified buildings.
6. Infrastructure Development
Infrastructure development plays a crucial role in driving real estate growth. Connectivity, transportation, and urban development projects directly influence property values and buyer interest.
What the Industry Expects:
Allocate higher budgets for infrastructure projects, including metro rail, highways, and smart cities.
Extend tax benefits to developers undertaking infrastructure-linked projects.
Encourage public-private partnerships (PPP) in urban development initiatives.
Impact on Real Estate:
Improved infrastructure will enhance connectivity and accessibility, driving demand for residential and commercial properties. It will also open up new growth corridors and increase real estate investments in emerging locations.
7. Rationalization of GST
The Goods and Services Tax (GST) regime, while simplifying tax structures, has led to confusion in the real estate sector. Developers and buyers alike seek clarity and rationalization of GST rates.
What the Industry Expects:
Reduce GST rates for under-construction properties to make them more attractive to buyers.
Clarify the input tax credit mechanism for real estate developers.
Exempt affordable housing projects from GST to encourage development.
Impact of GST Rationalization:
Lower GST rates will reduce the overall cost of ownership for homebuyers and improve demand for under-construction properties. It will also enhance transparency and compliance in the sector.
8. Incentives for Rental Housing
Rental housing is gaining prominence, particularly in urban areas with a large migrant workforce. However, the segment remains underdeveloped due to limited policy support and financial incentives.
What the Industry Expects:
Provide tax benefits to individuals and companies investing in rental housing projects.
Introduce schemes to promote rental housing for students, professionals, and low-income groups.
Extend benefits under the Model Tenancy Act to encourage landlords and tenants.
Impact on Rental Housing:
Promoting rental housing will address the housing needs of urban migrants and reduce the burden on homeownership. It will also create a steady income stream for investors and developers.
9. Focus on Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) have emerged as a popular investment vehicle, offering a transparent and regulated way to invest in real estate. However, the adoption of REITs in India is still at a nascent stage.
What the Industry Expects:
Provide tax exemptions for dividends earned through REITs.
Reduce the minimum investment threshold for retail investors.
Streamline regulations to encourage more listings of REITs.
Impact of REIT Incentives:
Encouraging REITs will attract retail and institutional investors to the real estate sector, boosting liquidity and transparency. It will also create an alternative financing mechanism for developers.
The Union Budget 2024-25 presents a critical opportunity for the government to address the challenges and opportunities in the real estate sector. By introducing reforms and incentives in areas such as affordable housing, taxation, infrastructure, sustainability, and liquidity, the government can unlock the sector’s full potential.
A robust and thriving real estate market not only supports economic growth but also fulfills the aspirations of millions of Indians seeking quality housing. As the industry awaits the Budget announcement, it is hoped that the measures introduced will pave the way for a more resilient, transparent, and sustainable real estate sector in India.
