Amid decreasing real estate activity observed in the latter half of calendar year 2024, the sector is looking forward to government initiatives aimed at stimulating overall consumption.
With only a few weeks left for the Union Budget 2025-26, home loan borrowers and industry experts are voicing their expectations for tax relief and reforms that would make homeownership more affordable.
Amid decreasing real estate activity observed in the latter half of calendar year 2024, the sector is looking forward to government initiatives aimed at stimulating overall consumption.
Finance Minister Nirmala Sitharaman is scheduled to deliver the Union Budget for the fiscal year 2025-26 on February 1, which will mark her eighth consecutive presentation of the budget. This budget will be the second full budget of the Modi government in its third term and will be closely watched by various sectors, including real estate. The session will commence at 11:00 am IST in the Lok Sabha.
For the real estate sector, key expectations include industry status recognition and a revival of the affordable housing segment, as per a release by real estate consultant ANAROCK. Once a promising sector, affordable housing—homes priced under Rs 40 lakh—has struggled post-pandemic, with demand and supply shrinking significantly. According to ANAROCK data, the sales share of affordable housing fell to a mere 18% in 2024 from over 38% in 2019. Similarly, its share of total housing supply in the top seven cities dropped to 16% in 2024 from nearly 40% in 2019.
“Affordable housing demands focussed efforts and specific benefits, which have been lacking over the past two years. While tax incentives to increase supply and assist buyers are vital, the underlying issues go deeper. A major concern is the scarcity of urban land, especially in regions where affordable housing is critically needed,” said Anuj Puri, Chairman – ANAROCK Group, in the release.
To tackle this issue, the government could consider releasing centrally managed land—overseen by entities such as the Indian Railways, Port Trusts, and the Department of Heavy Industries—for affordable housing initiatives. Puri also called for the following measures listed below:
- Reintroduce the Credit-Linked Subsidy Scheme under PMAY: The scheme designed for Economically Weaker Sections (EWS) and Low-Income Groups (LIG), which lapsed in 2022, should be reestablished to encourage first-time buyers of affordable housing. This initiative could also include financing for new construction or the addition of vital amenities such as additional rooms, kitchens, or bathrooms to existing properties. Within the framework of the Pradhan Mantri Awas Yojana (PMAY) for rural areas, subsidies could help in the transformation of temporary structures or ‘kachha homes’ into permanent or ‘pucca’ ones, provided specified eligibility requirements are met.
- Restore the 100% Tax Holiday for Developers: The tax exemption provided by Section 80-IBA of the Finance Act, 2016, served as a catalyst for increasing the availability of affordable housing. Reintroducing this benefit could be a game changer, offering substantial tax breaks to developers focused on affordable housing projects.
- Revise Affordable Housing Criteria: The existing criteria for defining affordable housing, which consider factors such as size, price, and buyer income, require urgent revision. Although the size criterion (60 sq. m. carpet area) is reasonable, the price cap of Rs 45 lakh is impractical in high-cost cities like Mumbai. The cap should be raised to at least Rs 85 lakh in Mumbai and Rs 60-65 lakh in other metro cities to align with current market conditions. Such adjustments would allow a greater number of properties to be classified as affordable housing, thereby providing buyers with access to reduced GST rates (1% without ITC) and additional subsidies.
While listing out the real estate sector’s Budget expectations, the Kerala State Cooperative Bank stated in a blog that inflation and the escalating costs of raw materials have progressively impacted housing prices. In 2024 new home sales declined for the first time due to increased home prices. Contributing factors include the increased cost of raw materials, high borrowing costs among others. To help people access affordable housing, the bank called for essential measures such as:
- Adjustment in input tax credit: The development of real estate relies heavily on raw materials. An increase in tax credit leads to higher material costs, which subsequently raises overall construction expenses. While immediate reductions may not be feasible, implementing specific adjustments to the tax credit could lower construction costs. This, in turn, may help mitigate the rise in housing prices, making homes more accessible to potential buyers.
- Legislative and policy reforms: The government should consider enacting legislation and policies designed to attract both domestic and international investors, thereby increasing funding in the sector. Policy changes aimed at drawing in investors are imperative as this would enable developers to secure the necessary capital to complete projects in a timely manner.
- Tax relief on home loans: Tax relief on home loans could incentivise new homebuyers by reducing the tax burden associated with property purchases. Additionally, subsidies for affordable housing could also increase demand.
Kaushal Agarwal, Co-Founder & Director of The Guardians Real Estate Advisory believes that the upcoming Union Budget 2025-26 has the potential to prioritize policies that promote growth in the real estate sector, as reported by ETNow.
“The reintroduction of the Credit-Linked Subsidy Scheme, along with the provision of tax holidays for developers, has the potential to stimulate project development. Furthermore, increasing the limit for home loan interest deductions would enhance housing affordability. Other essential priorities should include infrastructure development, reforms in urban land policies, and the establishment of a single-window clearance system. Additionally, it is crucial to enhance liquidity for developers and implement incentives aimed at attracting both domestic and foreign investments,” Agarwal added.
