The real estate industry, a vital contributor to the economy and the second-largest employment generator, is poised on the brink of potentially transformative changes. The sector eagerly anticipates the 2024-25 budget announcements, which are expected to significantly influence its future. In the previous year, the Central and State governments implemented a series of reforms and incentives to rejuvenate the economy. These efforts have been instrumental in sustaining the growth momentum of the real estate sector. A major focal point for the Government continues to be affordable housing. We suggest an increase in the cap for interest rate deduction under section 24(b) from Rs. 2 lakh to Rs. 5 lakh per annum. Additionally, there’s a call to redefine the definition of affordable housing, proposing an increase in the cap from Rs. 45 lakh to Rs. 1 crore, particularly in metro cities. This change is expected to significantly boost both affordable and mid-segment housing.

The industry also anticipates the continuation of incentives for affordable rental housing schemes. Tax reliefs for such projects could accelerate investment and aid in achieving the Government’s ambitious ‘Housing for All’ goal. Further expectations include tax benefits for first-time homebuyers and the re-introduction of GST with an input tax credit on under-construction properties. These measures are anticipated to stimulate demand among homebuyers. Other suggestions include tax reliefs to fuel significant growth in the real estate sector, single window clearance, and reduced home loan interest rates. The reintroduction of subvention schemes is also on the wish list, which would assist homebuyers in aligning their payments and encourage home buying decisions.

There’s a call for an increase in the SWAMIH stress fund and the creation of a second tranche with a corpus of ₹50,000, aimed at completing stalled realty projects and ensuring adequate liquidity.

A long-standing demand of the sector has been the granting of ‘industry status’ to real estate. This year, there is a hopeful anticipation that the Government will address this issue.

In summary, the real estate sector expects the Government to take decisive actions in the upcoming budget to fortify not only the real estate market but the entire economy. These measures should aim at addressing critical issues, ensuring job creation, and sustaining growth momentum.

Also Read: Real Estate’s Expectations from the 2024–2025 Interim Budget

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In 2023, the residential real estate market experienced extraordinary growth, as new launches and home sales reached record highs. In 2023, sales of housing in the top seven cities reached an all-time high of about 4.77 lakh units, while sales of newly launched homes reached almost 4.46 lakh units.

The real estate industry’s outlook for 2024 is currently positive, but the results of the upcoming general elections will also have a significant impact on the demand for and growth in residential real estate.

The real estate industry invariably presents the Finance Ministry with a very ambitious wish list every year before the annual Union Budget. Industry status for the housing sector and single-window clearance for housing projects are standard asks and remain in place this year, as well.

Since the pace at which the issues that the real estate sector faces get resolved is generally quite slow, these expectations haven’t changed much – though they’re as pressing as ever. That said, we must have reasonable expectations for the interim budget, which will be unveiled before the general elections.

• Maximum deduction for home loans (u/s 24)

It is necessary to increase the Section 24 of the Income Tax Act’s INR 2 lakh tax rebate on home loan interest rates to at least INR 5 lakh. Doing so could stimulate a more robust market for housing, particularly in the budget homes segment, which has seen a decline in demand since the pandemic. 

• Decisive boost for affordable housing

Given how badly the epidemic affected this segment’s target audience, affordable housing has been affected severely. ANAROCK Research finds that the previously much-touted budget homes category saw a decline in overall sales – to approximately 20% in 2023 from over 30% in 2022, and nearly 40% in the period before to the pandemic.

Not surprisingly, this segment’s percentage of the total housing supply in the top 7 cities also fell to 18% in 2023 from nearly 40% in 2019.

Several interest stimulants that were offered to developers and consumers in this market over the years have expired in the last one to two years. It is imperative to revive and extend significant benefits, such as tax breaks, to encourage developers to construct more affordable housing and to make it possible for customers to acquire such homes.

• Modify the qualifying standards for affordable housing to make more buyers eligible for the additional deductions.

The Ministry of Housing and Urban Poverty Alleviation defines affordable housing as being determined by the buyer’s income, the size of the property, and its price. Affordable housing is defined as a house or apartment valued up to INR 45 lakh, with a carpet area of up to 90 square metres, located in non-metropolitan cities and villages, and 60 square metres in large cities.

The definition provided by the central bank, however, is based on the loans that banks provide to individuals so that they can purchase apartments or build houses.

The government needs to take a hard look at adjusting the qualifying cost of properties within cities’ affordable housing segment. Although the units’ defined size of 60 square metres is reasonable, the prices of up to INR 45 lakh make them unaffordable to a huge share of the target clientele.

For example, a budget of

• Release government land for affordable housing

Addressing the land shortage for this vital housing segment is also necessary. Certain lands that are owned by Indian Railways, Port Trusts, Department of Heavy Industries, etc., may be released by the corresponding government agencies. When this land is released at low cost specifically for affordable housing, it will also significantly lower real estate prices overall.

Also Read: Budget Growth Oriented, Needed More Thrust to Real Estate to Spur Demand: NAREDCO

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“The upcoming budget is a highly anticipated one. While on the residential side, the rising interest rates are slowing demand in the affordable and mid segments, the limit in the tax deduction on interest paid should be increased from the current INR 2 lakhs to about INR 3-4 lakhs in case of self-occupied property and to be allowed without any limit in case of let out property. A hike in interest deduction will encourage the homebuyers to invest in the real estate and increase the demand in the market. On the commercial front, it will be a huge breather if investments in REITs can get exemption under section 80C, starting INR 50,000. Moreover, sovereign green bonds can be given a further push which could attract investments and enhance green development”, said Ramesh Nair, Chief Executive Officer | India & Managing Director, Market Development | Asia, Colliers.

Benefits to home buyers to boost demand in mid and affordable housing segment

Further, 100% tax holiday for affordable housing projects under Section 80IBA can be continued which was earlier only extended till 31 March 2022. This can provide a boost to rental housing in the affordable segment.100% exemption for rental income up to INR 3 lakhs for houses costing up to INR 50 lakhs can directly incentivize owners to rent out their houses to the targeted segment.

Separate deduction for principal repayment

There should be a separate deduction for the repayment of the principal amount of the home loan, which is currently clubbed under section 80C. At present, the ceiling of deduction for principal repayment of housing loan is INR 150,000 along with other tax saving instruments. Alternatively, the overall ceiling limits of section 80C can be raised up to INR 500,000 which can further spur investments.

Softening input costs load

Raw material costs have been constantly on the rise since last three years when they touched highest levels in March 22 led by supply chain constraints. Average cost of construction rose 10-12% YoY. The government should take steps to reduce the GST on such materials especially cement which corresponds to 28% of the total cost. Input Tax Credit (ITC) can also be levied on raw materials to boost commercial and residential development.

Tax benefits for REITs to attract more investments

The presence of high-quality tenants has led to uninterrupted revenue for the REITs, ensure stable returns to unit holders. The budget should make provisions for tax reductions in REITs by reducing TDS rate from the present 10%. This will give a major thrust to the sector and improve the flow of working capital. Further, investments made in REITs can get exemption under section 80C, starting INR 50,000, this can provide a thrust to the investors. 

Start-up-centric initiatives for higher investments in innovation and tax breaks

Start-ups can be offered with policies that can reduce input costs, enhance liquidity, and stimulate financial enclosure for certain sub-sectors. The budget can infuse certain assistance to save time and financial savings in forming a business. For instance, registering for GST, obtaining MSME certifications, number of tax filing, tax slabs, etc. for firms qualifying under Start-up India Scheme can be done through a single window clearance system. A separate tax and regulatory framework can be created for Private Equity/Venture capitals and start-ups.

Incentivise development of green/sustainable buildings

The government can provide incentives to companies who are engaged in climate responsive projects.   Developers and investors who are engaged in building green buildings can be exempted from income tax for any 10 consecutive years in a 15-year block. The sovereign green bonds announced in the previous budget should be further given a push in during 2023. As India gears up to implement the strategies addressed during COP 27, a robust sovereign green bond framework would aid in raising funds and improve investor confidence. The government can also create a 5-year plan to steadily scale up the usage of green bonds.

Budget likely to augment reduction of logistics costs and extend subsidies for EVs

The budget is expected to align with the National Logistics Policy, which would attract more investments in developing connectivity projects and logistics infrastructure through PPP model. To reduce the overall logistics cost, it shall give exemption from GST on all international transportation services. The government should also plan incentives for developers to adopt green warehousing concepts. To further electric mobility, subsidies for electric vehicles (EVs) are likely to get extended under Faster Adoption and Manufacturing of Electric Vehicles (FAME-II) scheme and shall also include light to heavy commercial vehicles in the scheme.  

Also Read: Real Estate looks for enhanced impetus in Union Budget 2023-24

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The year 2022 saw an amazing revival of the real estate sector with excellent property sales being recorded across housing segments. The industry hopes to continue with the same tempo in the year 2023 as well.  

We look forward to the Finance Minister granting industry demand of increasing the tax slab upto Rs. 5 lakh from present Rs 2 lakh per annum, against interest rate deduction under section 24(b) of the Act.

Property rates in metro cities are very high and out of reach for most home buyers in the lower property segment. Revising the cap from 45 lakh to 1 crore in metro cities, for home buyers availing the credit link subsidy scheme will immensely benefit customers in the affordable housing category and make housing more accessible to them.

The Government should introduce tax sops for first-time homebuyers and re-introducing GST with an input tax credit on under-construction properties that will reduce property rates thereby generating demand among homebuyers.

The government should consider expanding the SWAMIH Fund which will not only ensure completion of stressed projects but will also broaden the scope across property segments and assist developers of stressed projects in delivering them on time too to the home buyer. This will ultimately boost the confidence of the homebuyers.

The real estate sector is looking at continuation of a robust housing demand in 2023 and developers expect the government to play a more constructive and supportive role. A robust housing sector will complement infrastructure development and will be a catalyst to the growth of the economy  as well.

Pritam Chivukula, is Co-Founder & Director, Tridhaatu Realty and Treasurer, CREDAI-MCHI

Also Read: Real Estate looks for enhanced impetus in Union Budget 2023-24

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Following agriculture, the real estate sector employs the most people in India and accounts for approximately 6-7% of the country’s total gross domestic product (GDP). Recognizing its significance, the Central and State Governments have taken proactive measures to strengthen the real estate sector. For instance, in the previous budget, Finance Minister Nirmala Sitaraman allocated Rs 48,000 crore to the Pradhan Mantri Awas Yojana (PMAY) for affordable housing. The thrust on making affordable housing available to all, seeks government intervention in the forthcoming Union budget to address the acute shortage of demand situation. Realtors want the government to provide an impetus package that fetches relief to home buyers on the costing front.    

The realtor companies too are seeking remedial action by speedy implementation of the Model Tenancy Act on a pan-Indian scale, as it gives a level playing ground to all the players in the sector. The Act calls for a system of checks and balances that protects the interests of all, landlords, tenants and agents. 

The top priorities on a scale of five were, increase tax rebate slabs, encourage consumption by home buyers, enhance building of social infrastructure to invite home buyers, make room for more buying capacity in terms of employment and jobs and ensuring housing for all turns into a dream come true.

The Centre on its part had initiated measures beginning with Pradhan Mantri Awas Yojana (PMAY) to mitigate the housing shortage problem that has precipitated massive slum pockets and shanties in the urban and semi-urban areas of the country. Currently, the Centre is also mulling with the proposal of bringing down the costs of under construction properties as in most instances the developers have failed in passing on the benefits of input credit tax to the home buyers, despite repeated pleas from the government.

The forthcoming budget session will also be keenly watched for providing relief to prospective tenants in metro cities like Mumbai. This envisages the speedy implementation of the Affordable Rental Housing Scheme (ARHS). The ARHS falls under the aegis of PMAY and seeks shelter for everyone including those falling in the Below Poverty Line (BPL) category.

Himanshu Jain, is the VP – Sales, Marketing & CRM, Satellite Developers Private Limited (SDPL)

Also Read: Real Estate’s Budget Expectations – 2023-24 

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