The real estate sector, often referred to as the backbone of the Indian economy, is eagerly awaiting the announcements of the upcoming Union Budget 2025. As a sector that contributes approximately 7% to the country’s GDP and is expected to grow to $1 trillion by 2030, its significance cannot be overstated. The government’s policy decisions in the financial budget play a crucial role in shaping the sector’s trajectory, especially in areas like housing demand, infrastructure growth, and financing.
According to Sachin Gupta, Founder of My RealEstate Services MRE LLP, “The upcoming budget presents a golden opportunity to address key challenges in the real estate sector, from affordability to infrastructure expansion. Strategic policies and tax reforms can unlock immense potential and benefit all stakeholders.”
Here’s a closer look at the expectations from this year’s budget to bolster the real estate sector and address key factors like home loans and tax subsidies.
1. Boosting Affordable Housing Initiatives
The government’s flagship programs like Pradhan Mantri Awas Yojana (PMAY) have made considerable progress in promoting affordable housing. However, the demand for housing far outweighs supply in urban areas.
Expectations:
- Increased Allocation for PMAY: A substantial hike in the budget allocation to accelerate project completion.
- Extension of CLSS Benefits: The Credit Linked Subsidy Scheme under PMAY should be extended with higher income brackets to benefit the middle-income group.
2. Enhancing Home Loan Affordability
The cost of home loans is a critical factor influencing homebuyers. With rising interest rates, affordability is under pressure.
Expectations:
- Increased Deduction Limit on Home Loan Interest: Currently capped at ₹2 lakhs under Section 24(b) of the Income Tax Act, there is a strong demand for this limit to be raised to ₹3 lakhs or more to align with current property prices.
- Introduction of a Separate Deduction for Principal Repayment: While principal repayment is covered under Section 80C, this section is already burdened with multiple investments like PPF and insurance. A separate deduction solely for home loan principal repayment could incentivize home ownership.
- Reduced GST on Housing Loans: A reduction in GST on loan processing fees could further ease the financial burden on buyers.
3. Incentivizing Sustainable and Green Real Estate
Sustainable development is the need of the hour. Incentives for green buildings and eco-friendly infrastructure can attract developers to prioritize such projects.
Expectations:
- Tax Holidays for Green Projects: A tax exemption for developers focusing on sustainable real estate.
- Subsidized Home Loans for Green Housing: Encouraging buyers to opt for energy-efficient homes through lower interest rates on loans.
4. Real Estate Investment Trusts (REITs)
REITs have gained popularity among retail investors, offering a lucrative investment option. However, taxation policies around REITs remain a concern.
Expectations:
- Reduced Tax on REIT Dividends: Lowering the tax burden on REIT investors to encourage broader participation.
- Eased Regulations: Simplifying compliance norms for REITs to make them more attractive for developers and investors.
5. Tax Reforms to Boost Real Estate Investments
Tax policies significantly impact the real estate market’s attractiveness.
Expectations:
- Rationalization of GST Rates: A reduction in GST rates on construction materials like cement and steel can lower costs for developers and buyers.
- Tax Holiday Extension for Developers: Extending the tax holiday under Section 80-IBA for affordable housing projects to further incentivize supply.
6. Infrastructure Development and Urbanization
Real estate growth is directly tied to infrastructure expansion. The government’s focus on building highways, airports, and metro networks has a positive ripple effect on real estate.
Expectations:
- Increased Infrastructure Spending: Special emphasis on Tier-2 and Tier-3 cities to promote balanced urbanization.
- Funding for Smart Cities: Expanding the Smart Cities Mission to include more urban centers can enhance livability and boost housing demand.
7. Addressing Rental Housing Policies
With a significant portion of the population relying on rental accommodation, formalizing the rental market can be a game changer.
Expectations:
- Incentives for Rental Housing Development: Tax breaks or subsidies for developers creating rental housing projects.
- Implementation of Model Tenancy Act: Encouraging states to adopt the Model Tenancy Act for a balanced framework between landlords and tenants.
Final Thoughts: A Balanced Approach
The real estate sector stands at a pivotal point where government policies can either accelerate its growth or dampen its momentum. From affordable housing initiatives to easing home loan burdens and introducing tax reforms, the upcoming budget has the potential to address the longstanding demands of the industry and its stakeholders.
For homebuyers, increased tax subsidies on home loans and reduced interest rates can make the dream of owning a home a reality. For developers, tax incentives and lower costs of construction materials can drive new projects. And for investors, reforms in REITs and infrastructure investments promise lucrative opportunities.
All eyes are now on Budget 2025, as it holds the key to unlocking the full potential of the Indian real estate sector.
