Union Budget 2024-25: Several Hits And a Few Misses for Real Estate
As the adage goes, it takes a village to raise a child. The same is true for developing an industry that is crucial for the country’s growth. The Union Budget 2024-25 made several notable announcements for the real estate business, including providing infrastructure development, creating new economic hubs, mildly slashing union budget income tax, stimulating economic growth and making our cities more liveable through policy measures for urban planning.
However, it missed the sector’s long-standing demand for industry status and rationalisation of GST. Lower interest rates impacts the sector’s capabilities in the housing, commercial, retail, and warehousing segments.
A perfect balance between powering the ecosystem and strengthening fundamentals from within is crucial for the growth of India’s real estate sector. This sector is expected to touch a $1 trillion market size by 2030 and account for 18-20% of India’s GDP. The Union government’s proposal to establish e-commerce export hubs and 12 industrial parks over the next few years, along with the ongoing PLI scheme, will lead to the establishment of large-scale residential units across the country.
The development of ‘Cities as Growth Hubs’ through economic and transit planning is a forward-thinking initiative that will spur urban growth and provide new investment opportunities for budget housing/ budget realty. Additionally, the framework for creative brownfield redevelopment will enable transformative urban projects, enhancing the living standards in our cities.
The continued investment in infrastructure, with a budget allocation of Rs 11.11 lakh crore, and the launch of Phase-IV of PMGSY to provide all-weather connectivity to 25,000 rural habitations underlines the government’s dedication to building a resilient and future-ready infrastructure.
Housing for All
This, along with the development of affordable housing under PMAY (Pradhan Mantri Awas Yojana), budget homes and covering the housing needs of one crore poor and middle-class families with an investment of Rs 10 lakh crore, including central assistance of Rs 2.2 lakh crore over the next five years, will power ‘Housing for All’. Similarly, simplifying credit access for MSMEs and abolishing the Angel Tax for startups will create more employment, thereby driving demand for quality housing.
The government also proposed stamp duty rationalisation through states to create a transparent rental housing market, but the Nirmala Sitharaman Union Budget failed to list concrete solutions. Additionally, several initiatives across land reforms, rental housing, etc., were proposed. However, the lack of a clear direction leaves its impact on the sector up to ambiguity.
Almost investor-friendly budget
The last few years have seen significant interest from retail investors in participating in the real estate sector. The establishment of Real Estate Investment Trusts (REITs) and other forms of alternative investments has opened up high-yielding avenues for them to invest. While this budget tried to capitalise on this trend by reducing the long-term capital gains holding period from 36 to 12 months, the hike in LTCG taxes from 10% to 12.5% resulted in a mixed bag.
According to a 2024 report by the Reserve Bank of India, investment vehicles for the budget real estate and infrastructure sectors—REITs and InvITs—have garnered Rs 1.3 lakh crore in the past four years until March end and are expected to facilitate more pooled funds.
It will be interesting to see when the impact of these initiatives will start reflecting on the sector’s growth, which has seen a rapid resurgence since the COVID-19 pandemic. In the short term, we can expect the needle to move a bit, but the next five years will be crucial to understanding the contribution of these developments to the real estate sector.
