The Indian real estate industry is the second-highest employment generator in the country after agriculture. The sector is deeply interlinked to as many as 220 allied sectors. By providing strategic incentives and resolving underlying complexities, the real estate sector could further be enhanced and help India achieve the desired pace of economic growth. The Union Budget for the fiscal year 2025-26 will be presented on 01 February 2025, by Finance Minister Nirmala Sitharaman. The budget could be the medium through which the government can introduce target measures for the real estate sector with the aim to sustain and further increase its growth momentum.
Budget Expectations:
Currently, home loan repayments receive tax deductions under two sections: the principal component under Section 80C, which is overcrowded with other investment options, and the interest component up to Rs 2 lakh under Section 24(b), which is often insufficient, especially in the initial years of the loan. As a result, many borrowers cannot fully utilize tax benefits. To address this, a separate tax section should be introduced, allowing a combined deduction of up to Rs 5 lakh for both principal and interest. This would enhance homebuyer sentiment and boost demand in the housing sector.
Previously, allowed a 100% tax exemption for affordable housing projects, but this benefit expired in March 2022. To boost housing for low- and middle-income groups, it should be reinstated with updated guidelines on project timelines, pricing, and floor space limits. This will help developers focus on affordable housing and support the government’s housing goals.
Currently, affordable housing qualifies for a 1% GST rate if priced up to Rs 45 lakh and if the carpet area is up to 90 sqm (non-metro) or 60 sqm (metro). Due to rising construction costs and inflation, the Rs 45 lakh limit is outdated and restricts access to affordable housing benefits. Increase the Rs 45 lakh limit and establish a mechanism to regularly review price and area thresholds to align with market conditions.
The present rules and regulations taxes notional rent on unsold properties held by developers after 2 years of receiving the completion certificate. However, developers may not always sell all units within this period, making the tax unfair. Since real estate inventory is meant for sale, not rental, the cooling period should be extended to 5 years, or the tax should apply only to properties developed for rental income.
The real estate industry has long sought infrastructure status, which would provide access to low-cost funding, while reducing the need for collateral.
Stocks to Watch:
Affordable Housing Financiers, Cement companies and select Construction companies.
Outlook:
The real estate sector is the second-largest employer in the economy. It is reportedly expected to grow at a 9.2% CAGR from 2023 to 2028, reaching $780.6 billion. By implementing measures to that would aid the real estate sector, the government can foster sustainable growth, enhance affordability, and attract both domestic and international investments, ultimately contributing to a more resilient and inclusive real estate market in the country. On a broad note, the upcoming budget will likely build up on the momentum in infrastructure in areas like roads, highways, metros and airports etc, providing enhanced connectivity across the country and will help keep real estate markets in tier two and tier three cities supported.