India's real estate market is currently witnessing strong uptrend, fueled by the burgeoning middle class. This demographic shift, characterized by a rapidly growing population and a flourishing economy, is attracting significant attention from industry experts, investors, developers, and aspiring homeowners. Several key factors are driving this remarkable growth, including increasing urbanization, rising disposable incomes, and improved access to education.
The Indian real estate sector is poised for substantial growth, with its market size reportedly projected to soar from $200 billion in 2021 to $1 trillion by 2030. Additionally, it is anticipated to contribute a significant 13% to the country’s GDP by 2025. The real estate sector in India currently makes up 8% of the country’s GDP. Stakeholders are keenly awaiting reforms that could draw more investments from both international and domestic sources. These changes would not only support developers but also make home-ownership more accessible to a broader segment of the population.
Budget Expectations:
The current government has long prioritized the 'Housing For All' initiative, and it is anticipated that this goal will receive additional momentum in the upcoming budget.
The industry hopes for a revision in caps for affordability housing that have been notified under the Pradhan Mantri Awas Yojana (PMAY). The current cap stands at Rs 45 lakh and it is expected that the new caps would allow residential properties ranging between Rs 65 lakhs to Rs 75 lakhs to be brought under affordable housing. The carpet area is also expected to be raised accordingly. Further, in the interest of homebuyers, it is expected that the credit-linked-subsidy-schemes (CLSS) would be revived.
A long-standing demand from real estate sector’s stakeholders is to increase the deduction for principal repayment, under Section 80C of the Income Tax Act, to Rs 2.5 lakh from its current level of Rs 1.5 lakh. Implementation of this measure would significantly enhance the affordability of home loans in the country.
It is expected that the Special Window for Completion of Affordable and Mid-Income Housing Projects (SWAMIH) fund receives additional fund allocation. This would not only help to resolve stalled projects but also enhance the overall liquidity in the real estate sector.
The government has various vacant or underutilised land parcels available to itself and public sector firms. The industry anticipates that the government will make certain land holdings available from its land bank at lower costs, particularly for affordable housing projects.
The government will likely prioritise infrastructure development, streamline regulatory processes and offer incentives for green building practices.
Prioritization of infrastructure development, streamlining of regulatory processes and granting of incentives for green building practices are expected to receive in the upcoming budget.
It has been keen expected that tax benefit on home loan interest under Section 24 of the I-T Act be increased from Rs 2 lakh to Rs 5 lakh.
To reduce rising costs, the commercial real estate sector expects a GST decrease on steel and cement, which are crucial components in the entire construction process. Lowering of TDS rates for coworking spaces from 10% to 2% has also been proposed.
It has also been proposed to grant industry status to the real estate sector. This would not only help to improve to the credit access but also bring down financing costs in the sector.
Introduction of a stable tax framework for Real Estate Investment Trusts (REITs) has been proposed. Further, a reduction in the minimum holding period for REIT units from 36 to 12 months and classifying REITs as equity instruments would enhance the overall liquidity of this asset class.
Stocks to Watch:
Affordable Housing Financiers, Cement companies and select Construction companies
Outlook:
All-India House price index or HPI increased by 4.1 per cent (y-o-y) in Q4:2023-24 as compared to 3.8 per cent growth in the previous quarter and 4.6 per cent a year ago . After prices increased in the important markets in tune with the post pandemic recovery, the domestic real estate market is probably going to see some consolidation in the near future. Despite the interest rates being at holding near multi year highs, the forecast for the sector is generally positive, provided that the Indian economy continues to maintain its current growth momentum. Major projects like the Delhi-Mumbai Industrial Corridor (DMIC) and the Chennai-Bengaluru Industrial Corridor (CBIC) are set to establish industrial hubs along key transportation routes. These projects would provide a fillip to the demand for housing in tier two cities. Any encouraging announcements made in the upcoming Union Budget are probably going to contribute to stabilising the current sentiments in the short term and provide a long-term boost to the industry.