Real Estate Sector's Wishlist for the Union Budget 2024-25

Unlocking Growth: Real Estate Sector's Wishlist for the Union Budget 2024-25

With Union Budget 2024-25 set to be tabled in July, the real estate sector pins renewed hope on the Modi 3.0 regime. Expectations are high for tax reliefs and other sentiment boosters. The future of the overall industry also depends on unfettered infrastructure deployment to support and improve urban living standards as well as to develop and promote newer areas.

Will the government finally decide to give in to the long-standing demand for industry status for the entire housing sector? Will it take 'real' measures to revive the affordable housing segment, which has been on a steady decline after the pandemic?

Current State of the Housing Market

The Indian housing sector remained upbeat in 2024 till date, with housing sales and new launches creating new peaks in the top 7 cities. Sales reached an all-time high at about 4.93 lakh units in FY23-24, while 4.47 lakh units were launched.

However, this momentum must continue in the future too - and the current growth trajectory is skewed towards mid-range and premium housing. Considering the specific housing needs of India’s lower-income groups, this momentum cannot ride solely on higher-priced homes while affordable housing continues to languish.

Decline in Affordable Housing

As per ANAROCK Research, the sales share of affordable housing reduced significantly after COVID-19 - from over 26 per cent in 2022 and over 38 per cent in 2019 to approximately 20 per cent in Q1 2024. Due to low demand, this segment’s share of the overall housing supply in the top 7 cities also fell to 18 per cent in Q1 2024, from nearly 40 per cent in 2019.

Many interest stimulants previously extended to buyers and developers of affordable housing have expired in the last two years. This important segment must be revived with high-impact measures like tax breaks - for developers, so that they will focus more on affordable housing, and for buyers to improve affordability.

Measures to Reignite Affordable Housing

Credit-linked subsidy scheme under PMAY: This scheme for EWS/LIG, which expired in 2022, should be revived to incentivize first-time buyers of affordable homes across cities. This will once again invigorate demand in this segment. Subject to criteria specified under government guidelines, CLSS was previously available for housing loans to EWS/LIG buyers in new constructions, and for the addition of rooms, kitchen, toilet, etc. to existing dwellings. Also, under PMAY (Rural), one could avail of this subsidy for all 'kaccha' homes being converted into 'pucca' ones, provided they fulfill the eligibility criteria.

Re-introduce 100 per cent Tax Holiday for affordable housing developers: To boost supply and incentivize developers to build more affordable housing, the government can re-introduce the ‘100 per cent Tax Holiday’ benefit they previously enjoyed under section 80-IBA in the Finance Act, 2016. This section provided for major tax relief on the profits earned from developing and building affordable housing projects.

Tweak definition of affordable housing criteria to widen additional deductions benefits to more buyers: According to the Ministry of Housing and Urban Poverty Alleviation, affordable housing is defined based on property size, price, and buyers’ income. For instance, affordable housing is a house or flat with carpet area up to 90 sq. m. in non-metropolitan cities and towns, and 60 sq. m. in major cities and valued up to Rs 45 lakh for both. The central bank’s definition, on the other hand, is based on the loans given by banks to people for building a house or buying apartments.

The government must seriously reconsider revising the pricing of homes within the affordable housing budget, taking into consideration city-specific market dynamics. As per the current definition, the size of units at 60 sq. m. carpet area is appropriate. However, prices of units (up to Rs 45 lakh) are not viable across most cities.