Shaping the Future: What the Real Estate Industry Hopes to See in Budget 2025-2026

The Indian real estate sector, a cornerstone of economic development, finds itself at a critical juncture. Rising borrowing costs, persistent inflation, and supply chain disruptions triggered by global geopolitical tensions have amplified pressures on this already dynamic industry. Against this backdrop, the upcoming Union Budget 2025-2026 presents a beacon of hope for industry stakeholders. The Finance Minister, Nirmala Sitharaman, will present the much-anticipated budget on February 1, 2025, and expectations across sectors, particularly real estate, are soaring.

Rising Costs and Unprecedented Challenges

The past year has been challenging for real estate developers. Elevated borrowing costs, combined with inflationary pressures, have led to a sharp uptick in construction expenses. According to Shrinivas Rao, FRICS, CEO of Vestian, these costs are expected to rise further due to ongoing supply chain disruptions caused by escalating geopolitical conflicts. "Amid rising costs and a demand slowdown, the real estate sector’s expectations from the upcoming budget are at an all-time high," he remarked, encapsulating the industry's sentiment.

Affordable Housing: A Demand for Realignment

Affordable housing has long been the bedrock of India’s real estate aspirations. However, the current price cap of ₹45 lakh no longer reflects the realities of development costs in metropolitan cities. Piyush Bothra, Co-Founder and CFO of Square Yards, emphasized the need to adjust this limit to ₹80 lakh, aligning it with the rising costs. The Confederation of Real Estate Developers' Associations of India (CREDAI) has echoed this demand, highlighting its potential to revitalize the sector. Broadening the definition of affordable housing could create a ripple effect, boosting both supply and demand.

Tax Relief for Homebuyers

Another critical expectation from the budget is an increase in the tax deduction limit on home loan interest. The industry has proposed doubling the current limit from ₹2 lakh to ₹4 lakh. This move could provide much-needed relief to aspiring homeowners, encouraging home ownership and stabilizing demand in the housing market.

Boosting Investment through REITs and Tax Incentives

The inclusion of Real Estate Investment Trusts (REITs) under Section 80C of the Income Tax Act has emerged as a key recommendation. Such a measure would position real estate as a viable and attractive tax-saving investment avenue. "Tax incentives for REITs could draw new investors into the sector and catalyze demand," noted Bothra.

Learn more about how REIT investments are shaping global real estate trends at reliable finance domains.

Granting ‘Industry’ Status to Real Estate

For years, the real estate sector has advocated for being recognized as an industry. This status would streamline regulations, reduce borrowing costs for smaller players, and attract larger investments. Moreover, achieving industry status could help the government advance its mission of "Housing for All."

Rationalizing GST to Lower Costs

The sector has also called for streamlining and rationalizing the Goods and Services Tax (GST) across real estate segments. While reduced GST rates for residential properties have brought some relief, the lack of Input Tax Credit (ITC) availability continues to drive up housing costs. Simplifying GST structures could enhance market vibrancy and make housing more accessible.

Driving Growth Beyond Metro Cities

Industry leaders are urging the government to focus on infrastructure and economic development in tier-2 and tier-3 cities. Budget incentives for green buildings, technology-driven growth corridors, and foreign institutional capital could unlock the potential of these emerging urban hubs. "Budget 2025 has the potential to lay the groundwork for Indian real estate to achieve its ambitious goal of reaching USD 1 trillion by 2030," said Badal Yagnik, CEO of Colliers India.

Conclusion: The Path Ahead

The Union Budget 2025-2026 offers a unique opportunity to address the challenges and unlock the immense potential of India’s real estate sector. By aligning affordable housing limits, offering tax reliefs, rationalizing GST, and promoting sustainable growth, the government can catalyze transformative change. These measures could lead to a stronger, more resilient market, ensuring real estate plays its vital role in India's economic growth story.