The real estate industry is a vital cog in the wheels of any economy, and government budgets usually comprise policies that meaningfully affect property owners and the real estate market in general. In this article, we will discuss possible budget measures that can impact the real estate investment avenues and try to predict how such provisions may alter the property market in the following year.
Overview of Budget 2024’s impact on real estate
The 2024 budget is expected to bring several initiatives that would help regulate and spur demand for real estate. Such measures will probably focus on contemporary issues, like housing accessibility, fluctuations in the stock market, and the sustainability of development.
Key objectives of the budget related to real estate
The budget can range from the general objectives of boosting the number and quality of homes, enhancing accessibility to homes for first-time use, and encouraging environmental stewardship. The budget could also look to meet domestic market demand for foreign investment and help to rebuild those commercial real estate segments hit by shifts in working practices.
Housing Affordability Measures
The present trend of growth is more inclined towards mid-income and high-end segment housing. Thus, this momentum cannot only be driven by higher ticket-size homes while affordable housing for the lower-income segment in India remains under-supplied. The government should therefore direct more incentives for affordable & mid segment housing experts.
According to the ANAROCK Research data, affordable housing has witnessed a decline in its sales too – from 26+ % in 2022 to 38+ % in 2019 to 20 % in Q1 2024. As a result, the share of this segment in the total housing stock in the top 7 cities declined to 18% in Q1 2024, from 37% in 2019. The total sales were also at its highest at nearly Rs 93 lakh units in FY 23-24, while 4. 47 lakh units were launched.
Tax Implications for Real Estate Investors
National Real Estate Development Council (Naredco), a builders’ body, has recommended in this budget the tax exemption limit on interest on self-occupied property loans be raised to ₹5 lakh from the existing ₹2 lakh to spur demand for homes as housing prices have gone up along with mortgage rates.
Some tax incentives have also been given by developers to increase demand and supply of affordable homes. NAREDCO added that as per Section 24 of the Income Tax Act, the amount of interest allowed as a deduction on a loan taken for self-occupied property is restricted to ₹2 lakh.
Real estate industry associations have put forward several proposals for consideration in the upcoming budget. The National Real Estate Development Council (NAREDCO) has requested that developers be given the option to choose between two GST payment structures:
a lower rate without Input Tax Credit (ITC), or a higher rate with ITC.
Currently, the GST rate stands at 1% for affordable housing units and 5% without ITC for other residential properties. If implemented, this flexibility could potentially lead to improved tax cost structures and cash flow management for developers, with possible benefits extending to end consumers as well.
Meanwhile, the Confederation of Real Estate Developers Associations of India (CREDAI) has included in its budget recommendations a proposal to enhance tax benefits for homebuyers. Specifically, CREDAI suggests either removing the cap on interest deductions for the first self-occupied property or increasing the current limit from ₹2 lakh to ₹5 lakh. This proposed change aims to provide greater financial incentives for potential homeowners and could stimulate demand in the residential real estate market.
Increase budgetary allocation towards PMAY
The government should consider enhancing the allocation of funds over the previous year to the Pradhan Mantri Awas Yojana (PMAY), along with the recent Cabinet decision, to provide financial aid for constructing three crore rural and urban houses under the scheme manifests that the government remains committed to supporting the affordable housing segment. There is the potential that the timely implementation of the scheme can have a further boost to the sector.
Additional 3 crore houses under the Pradhan Mantri Awas Yojana in the country in rural and urban areas have been declared, for which necessary provision is being provided.
The PM Awas Yojana Urban 2.0 aims to help 1 crore families with low or average incomes with housing. It will cost Rs 10 lakh crore, with Rs 2 lakh crore spent in the next 5 years. The plan may also offer cheaper loans by helping with interest costs.
Boost to Industrial and Urban Development
The establishment of an industrial node in the Amritsar-Kolkata Industrial Corridor including Gaya is a step in the right direction to give real estate a boost in these areas. This will lead to development of commercial and residential properties; and improve physical accessibility and economic interaction.
Also, the Government of India has launched transit-oriented development for 14 large cities with a population of 30 lakh plus, to encourage the development of mixed commercial and residential properties around transit stations, and expected to support the real estate business and improve urban design.
Sustainable Real Estate Development
The government has unveiled an ambitious plan to address housing needs through an expanded urban housing initiative. This program aims to provide housing solutions for 10 million families from lower and middle-income brackets. Such a bold target is expected to significantly boost demand in the affordable housing sector, potentially benefiting developers and construction firms specializing in this market segment.
Furthermore, the budget allocation for urban affordable housing over the next five-year period has been substantially increased to 2 trillion rupees. This enhanced funding is likely to accelerate housing project development in expanding urban centers, improve urban infrastructure, and elevate overall living standards in these areas. Consequently, this initiative may encourage greater investment in urban real estate markets.
Tourism and Cultural Development
The proposed modernization of Vishnupad and Mahabodhi Temple Corridors as world-class pilgrim tourist circuits will lead to the development of tourism and hospitality sectors, which will create more demand for commercial properties like hotels, restaurants, and shopping complexes.
In the same way, the growth of Nalanda tourism and the revival of Nalanda University will boost the cultural and academic values of the area, thus promoting investments in educational facilities and other associated properties.
What Are Expectations Of The Real Estate Sector?
This will be the first budget of Modi 3.0. Therefore, a number of industries are expecting policies that will enhance their expansion. Similarly, the real estate sector is also anticipating a few more which will be beneficial for their business.
Anurag Goel, Director at Goel Ganga Developments said, ‘So, the upcoming budget putting an extreme focus on infrastructure could turn the tables synonymously for real estate investment opportunities. Given the government’s target to invest Rs 111 lakh crore in infrastructure till 2025 under the National Infrastructure Pipeline, it expects a diversion into real estate investments. The huge Rs 25 lakh crore plan for better roads could create new popular areas for real estate along important routes, helping reduce overcrowding.
Further, the proposed outlay of Rs 19 lakh crores in developing urban infrastructure could indeed be a harbinger for change in the entire structure of urban renewal projects and was sure to unlock rich opportunities in the city center.
The trend to provide more focus on affordable housing, committing to construct 2 crore homes by fiscal 2025, is sure to open new opportunities for investors in the middle-income segment.
Moreover, with the anticipated Rs 3 lakh crore outlay for digital infrastructure a reality, data center infrastructure and smart-city projects emerged as early investors clobbered 14%-16% returns.
Overall Impact
With housing, infrastructure and urban planning as some of the key focal areas proposed in the 2024 budget, there is likely to be an unleash on real estate. From the side of different parts of society like affordable housing, industrial workers and urban infrastructure the budget is this year trying to strike a more inclusive growth. Real estate developers, investors and stakeholders can anticipate enhanced prospects and favorable policies in the coming years.
The numerous strategies enumerated and implemented in this budget demonstrate the government’s balanced approach to the growth and development of the real estate industry as a major driver of the nation’s economy.
