Budget Effects of Modi 3.0 on Real Estate in India: A Comprehensive Analysis & Implications
The Union Budget 2024-25, presented by Finance Minister Nirmala Sitharaman, marks the first full budget of Prime Minister Narendra Modi's third term in office. This budget holds significant implications for India's real estate sector, focusing on affordable housing, infrastructure development, and economic growth. Let's delve into the key effects of Modi 3.0's budget on the real estate landscape in India.
Setting the Stage for Real Estate Growth
The Modi 3.0 budget demonstrates a strong commitment to the real estate sector, recognizing its crucial role in India's economic development. With a focus on the 'Viksit Bharat' (Developed India) vision for 2047, the budget aims to address key challenges while promoting growth in the housing and infrastructure segments.
Boosting Affordable Housing: A Game-Changer for the Sector
One of the most significant announcements in the budget is the government's plan to add 2 crore more houses under the Pradhan Mantri Awas Yojana (PMAY-U) program over the next five years. This initiative is expected to have far-reaching effects:
However, industry experts emphasize the need for a revised definition of affordable housing. Anuj Puri, Chairman of ANAROCK Group, points out that the affordable housing segment's share in total sales has decreased from 38% in 2019 to approximately 20% in Q1 2024. A redefinition that reflects current market conditions and construction costs could help revive this crucial segment.
Tax Rationalization and Incentives: Enhancing Affordability and Encouraging Investment
The real estate sector has long been calling for tax rationalization, particularly regarding GST and stamp duty. Reducing these costs could significantly enhance affordability and encourage more buyers to enter the market.
Industry bodies like CREDAI have proposed increasing the deduction limit for interest payment on home loans from ?2 lakh to ?5 lakh per year. This move could add momentum to housing demand and make homeownership more accessible to a broader segment of the population.
Additionally, the sector is seeking incentives for builders, such as tax holidays for affordable housing projects. These measures could help developers manage their costs better and potentially pass on the savings to consumers. The revival of tax deductions under Section 80IBA, which lapsed in 2022, could provide a much-needed boost to affordable housing projects.
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Infrastructure Development: Laying the Foundation for Real Estate Growth
The budget's emphasis on infrastructure investment is critical for real estate development. The government has allocated ?11.1 lakh crore for infrastructure spending in FY25. This substantial investment is expected to:
Industry experts are also advocating for a streamlined single-window clearance system for project approvals. Amit Modi, Director of County Group, emphasizes that "implementing single-window clearance is crucial for timely project completion and cost efficiency". This system could significantly reduce delays and costs associated with obtaining necessary permits, facilitating timely project completion and overall sector growth.
Market Outlook: Promising Growth Amidst Challenges
The real estate market is poised to benefit significantly from the budgetary measures. Recent data shows a strong recovery in the residential property market, with home sales reaching an all-time high of ?3.47 lakh crore in FY23, marking a 48% year-on-year increase.
Industry projections suggest that the Indian real estate market could reach a value of ?65,000 crore by 2040. However, experts caution that continuous government support is crucial to maintain this momentum and address challenges such as rising construction costs and regulatory hurdles.
Badal Yagnik, CEO of Colliers India, notes that "the real estate sector is expected to contribute 13-15% of the Indian GDP by 2030". This projection underscores the sector's importance to the overall economy and the need for sustained policy support.
A Positive Outlook for Indian Real Estate
The Modi 3.0 budget demonstrates a clear commitment to boosting the real estate sector through affordable housing initiatives, infrastructure development, and potential tax reforms. These measures are expected to stimulate demand, attract investments, and contribute to the sector's long-term growth.
As the industry adapts to these changes and capitalizes on new opportunities, it's crucial to maintain a focus on sustainable development and the adoption of new construction technologies. With continued government support and industry innovation, the Indian real estate sector is well-positioned for robust growth in the coming years, playing a pivotal role in realizing the vision of a 'Viksit Bharat' by 2047.