The Indian real estate sector plays a pivotal role in the nation’s economic growth by providing jobs, homes, and investment opportunities. However, the industry faces several challenges that require government intervention for sustainable growth. With Budget 2025 around the corner, developers, buyers, and investors are optimistic about favorable reforms. Here’s a closer look at what the real estate sector expects from the upcoming budget and how these changes could reshape the industry.
1. GST Reforms to Ease Costs
One of the most significant demands from the sector is reform in the Goods and Services Tax (GST) structure. The current system imposes a 1% GST on affordable housing and 5% on other residential properties, without an input tax credit. This makes housing projects expensive as developers cannot claim refunds on materials like cement and steel, which are taxed at 28%.
Proposed Measures:
- Lower GST rates on construction materials like cement and steel.
- Introduction of input tax credit mechanisms to reduce construction costs.
Why It Matters:
Simplifying GST rules can lower property prices, making homes more affordable for buyers, particularly in the affordable housing segment. Affordable housing projects could thrive with reduced costs, boosting both supply and demand.
Also Read: Budget 2025: Expectations and Impacts on Key Sectors
2. Tax Incentives for Affordable Housing
Affordable housing is essential for meeting the needs of middle-income families. However, its share in the market has dropped significantly, from 26% in 2021 to 17% in 2024. Developers and buyers are seeking enhanced tax incentives to revive this segment.
Industry Expectations:
- Increase the tax deduction on home loan interest from the current ₹2 lakh to a higher limit.
- Extend tax holidays for developers focusing on affordable housing projects.
- Allocate more funds under the Pradhan Mantri Awas Yojana (PMAY) to encourage affordable housing supply.
Impact:
For buyers, higher tax benefits can reduce the financial burden of homeownership. For developers, tax holidays and funding boosts will provide the impetus to launch more affordable housing projects, addressing the growing demand in this category.
3. Focus on Co-Working Spaces
The rapid rise of start-ups and hybrid work models has fueled demand for co-working spaces. However, this segment lacks formal recognition and policy support from the government.
What the Sector Wants:
- Official recognition of co-working spaces as a separate industry.
- Policies encouraging investments in this segment, such as subsidies and tax benefits.
Why It’s Crucial:
Recognizing and supporting co-working spaces will provide affordable and flexible office solutions to entrepreneurs, start-ups, and freelancers. This will also drive investments in commercial real estate, creating a win-win scenario for both developers and tenants.
4. Boosting Infrastructure Investments
Infrastructure development directly impacts real estate by enhancing connectivity and improving the livability of urban areas. Cities like Noida and Gurugram have seen a surge in property values due to better metro connectivity and road networks.
Sector Expectations:
- Larger budget allocations for urban infrastructure projects.
- Expedited approvals for smart city initiatives, metro projects, and airport expansions.
The Ripple Effect:
Improved infrastructure attracts both buyers and investors, driving demand in residential and commercial real estate. Enhanced urban planning can also make housing more accessible and desirable in peripheral areas.
5. Promoting Sustainable Real Estate
Sustainability has emerged as a key focus area in the real estate sector. However, the higher costs of adopting green building practices often deter developers from implementing eco-friendly measures.
Proposed Measures:
- Tax credits for using renewable energy systems like solar panels and energy-efficient appliances.
- Subsidies for sustainable construction materials and water recycling systems.
- Incentives for developers incorporating waste management facilities in housing projects.
Why It Matters:
Encouraging sustainability aligns with India’s broader environmental goals while making homes more attractive to eco-conscious buyers. Over time, these practices can lead to cost savings for homeowners, fostering greater adoption of green housing initiatives.
6. Enhancing Liquidity with REITs
Real Estate Investment Trusts (REITs) have opened up avenues for small investors to invest in commercial real estate. However, the REIT market in India is still in its early stages and requires more government backing to gain traction.
Industry Suggestions:
- Simplify compliance requirements for REITs to attract more investors.
- Provide tax benefits for individuals investing in REITs to enhance liquidity.
Benefits:
By making REITs more accessible and lucrative, the government can encourage investments in commercial properties like malls and office spaces. This would also provide developers with an alternative funding source, reducing dependency on loans.
Key Highlights of the Current Scenario
- Affordable Housing: The share of affordable housing has decreased significantly, signaling the need for targeted reforms.
- High GST on Materials: Construction materials like cement and steel are taxed at 28%, adding to project costs.
- Emerging Co-Working Spaces: This growing segment needs formal recognition and policy support.
- Sustainability Challenges: Green practices are essential but require financial incentives for widespread adoption.
Why Budget 2025 Could Be a Game-Changer
The upcoming budget offers an opportunity for the government to address the long-standing issues of the real estate sector while capitalizing on its potential for growth. Here’s how the proposed reforms can transform the industry:
- Lower Costs: GST reforms and input tax credits can reduce the overall cost of housing projects, making homes more affordable.
- Encourage Development: Tax incentives and subsidies for affordable and sustainable housing will motivate developers to launch more projects in these segments.
- Boost Investments: Supporting co-working spaces and REITs will attract both domestic and international investors.
- Enhance Livability: Infrastructure investments will improve urban connectivity, making cities more livable and increasing real estate demand.
- Foster Sustainability: Eco-friendly policies will pave the way for a greener, more sustainable real estate landscape.
Conclusion
Budget 2025 holds the promise of significant reforms for the real estate sector. With measures like GST simplifications, enhanced tax incentives for affordable housing, and infrastructure investments, the government can address the industry’s challenges while unlocking its growth potential.
For buyers, this could mean more affordable homes, better amenities, and increased investment opportunities. For developers, it offers a path toward reduced costs, increased demand, and sustainable growth.
The real estate sector is not just about building homes, it's about shaping communities and creating economic opportunities. With the right reforms, Budget 2025 can propel the sector to new heights, benefitting millions across the country.
Also Read: Will Union Budget 2025 Revive India's Shrinking Affordable Housing Segment?
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Ans 1. The sector expects GST reforms, increased tax incentives for affordable housing, infrastructure investments, support for co-working spaces, promotion of sustainable real estate, and enhanced policies for REITs.
Ans 2. GST reforms, such as lower tax rates on construction materials and input tax credit mechanisms, can reduce construction costs, making homes more affordable for buyers.
Ans 3. Affordable housing caters to middle-income families and boosts homeownership. It also addresses urban housing demands and stimulates overall sector growth.
Ans 4. Developers seek tax holidays for affordable housing projects, while buyers expect increased home loan interest deductions and expanded funding under schemes like PMAY.
Ans 5. The government can recognize co-working spaces as a formal industry and introduce policies offering subsidies and tax benefits to encourage investments in this segment.
Ans 6. Improved infrastructure enhances connectivity and livability, driving demand for residential and commercial properties and boosting property values.
Ans 7. The sector suggests tax credits for renewable energy systems, subsidies for eco-friendly construction materials, and incentives for waste management facilities in housing projects.
Ans 8. Simplified compliance and tax benefits for REITs can attract more investors, providing developers with alternative funding sources and increasing liquidity in the market.
Ans 9. Challenges include high GST on construction materials, declining affordable housing share, lack of policy support for co-working spaces, and higher costs of adopting sustainable practices.
Ans 10. Budget 2025 is an opportunity for the government to implement reforms addressing long-standing challenges and unlocking the sector's potential for sustainable growth and economic development.