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– by Akash Pharande, Managing Director – Pharande Spaces

The Indian real estate sector, particularly housing, is at a critical juncture as we approach the Union Budget for 2024-2025. Considering the forward momentum seen in 2023, alongside global economic challenges and the stagnation in affordable housing, there are several key areas the sector should focus on in its demands from the upcoming budget.

Though this is an interim budget, traditionally viewed as a stop-gap arrangement before a full-fledged budget post-general elections, it still holds significant potential for addressing immediate concerns and laying groundwork for future policies.

An interim budget, typically presented in an election year, is meant to cover the government's expenditure for a part of the year until a new government presents the full budget. However, it is not necessarily just a stop-gap arrangement but also an opportunity for the incumbent government to outline its vision and set the tone for future policies.

Real estate stakeholders therefore look to it as an opportunity to introduce critical reforms or support measures, even if they are to be fully fleshed out in the full budget.

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1. Addressing the Affordable Housing Challenge

The stagnation in affordable housing has been a critical issue over the past few years. The sector requires:

  • Enhanced budget allocations for existing affordable housing schemes.
  • Streamlining of approvals and clearances for affordable housing projects to expedite development.
  • Tax incentives for developers focusing on affordable housing segments.

2. Tackling Funding Issues

Liquidity crunch has been a significant challenge for real estate developers, especially post the NBFC crisis. The budget should focus on:

  • Measures to ease liquidity for real estate projects, possibly through dedicated funds or special windows under institutions like National Housing Bank (NHB).
  • Reforms or relaxations in external commercial borrowing (ECB) norms to allow more foreign capital in real estate.
  • Strengthening REITs (Real Estate Investment Trusts) framework to attract more investment.

3. Taxation Reforms

Taxation remains a critical aspect of real estate investment and development. The sector's demands include:

  • Rationalization of GST rates on real estate projects. This is important. While GST aimed to simplify taxes, its structure for real estate has been complex, with issues like input tax credit causing concerns among developers.
  • Rationalizing GST rates for raw materials used in affordable housing or providing input tax credit benefits can reduce the overall cost of construction, indirectly benefiting buyers.
  • Additional tax deductions for homebuyers, particularly in the affordable and mid-income segments. Currently, under Section 24(b) of the Income Tax Act, taxpayers can claim a deduction on home loan interest. Increasing this limit, especially for affordable housing, would make buying homes more attractive for the lower and middle-income groups. Under Section 80C, there is a deduction for the repayment of the principal amount of home loans. Increasing this limit for affordable housing can be another incentive.
  • Enhancing additional tax deductions for first-time homebuyers in the affordable housing segment can also incentivize more people to invest in property.
  • Incentives for sustainable and green building practices through tax rebates.
  • Providing tax deductions to those offering rental properties in the affordable segment can promote rental housing, which is a critical need in urban areas.

4. Regulatory and Policy Reforms

Policy reforms are essential for sustained growth. The sector needs:

  • Streamlining RERA (Real Estate Regulation Act) across states for uniformity and better compliance.
  • Policies promoting rental housing as a viable option, which is critical for urban areas with migrant populations.
  • Clarity and support for digitization in land records and transactions.

5. Focus on Infrastructure and Urban Development

Infrastructure is the backbone of real estate growth. The budget should consider:

  • Increased spending on infrastructure, particularly in tier 2 and tier 3 cities.
  • Policies to integrate urban development with transportation, like Transit-Oriented Development (TOD).

6. Encourage Foreign Direct Investment (FDI)

To attract more foreign investment, the budget could:

  • Relax FDI norms in certain real estate segments.
  • Provide clarity and stability in policies to build investor confidence.

7. Boost Sustainable Development

With increasing focus on sustainability, the sector requires:

  • Incentives for projects adhering to green building norms.
  • Support for innovation in sustainable materials and construction technologies.

8. Support Technology Adoption

Technology is already revolutionizing real estate. The budget should focus on:

  • Incentives for adopting technology in construction and property management.
  • Support for PropTech startups through funding and policy initiatives.

Without a doubt, of all the above-mentioned points, affordable housing is the segment which most needs an immediate shot in the arm. The government had set a very high expectations benchmark for it with its Housing for All target. It can go a long way in using this interim budget to set the stage for a robust comeback of this critically important segment.

About the Author:

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Akash Pharande is Managing Director – Pharande Spaces, a leading real estate construction and development firm famous for its township projects in West Pune and beyond. Pharande Promoters & Builders, the flagship company of Pharande Spaces and an ISO 9001-2000 certified company, is a pioneer of townships in West Pune.