Reality of Realty: Did the Union Budget 2024 stand up to the expectations of the real estate market?

Representational Image. File Pic

Union Finance Minister Nirmala Sitharaman presented the Union Budget for the financial year 2024-25 on Tuesday. While the real estate market had high hopes for tax incentives and industry status, the bill told a different story. Despite differing from expectations, the provisions have the potential to impact the realty sector both directly and indirectly.

Industry experts weighed in to break down what this Budget means for the future of the real estate market.

"A close look at this Budget shows that the government has put special consideration on affordable housing, infrastructure development, and urban planning," said LC Mittal, Director of Motia Group. The Finance Minister announced that three crore additional houses under the PM Awas Yojana will be constructed in rural and urban areas. Additionally, under PM Awas Yojana Urban 2.0, the housing needs of one crore urban poor and middle-class families will be addressed with an investment of Rs 10 lakh crore. "This will provide a much-needed impetus to the affordable housing segment in Mumbai," anticipates Domnic Romell, President of CREDAI-MCHI. Experts say this push towards urban housing will stir up demand and construction activities. However, Mittal also highlights that increased demand can lead to rising property prices and possible overcrowding in urban centres as more people are drawn to cities.

Before the Budget announcement, experts anticipated tax incentives on home-buying and subsidisation of home loans. Similarly, Sitharaman stated that the government will encourage states that continue to charge high stamp duty to moderate the rates. Additionally, the government will consider further lowering duties for properties purchased by women, making this reform an essential component of urban development schemes. Romell calls this a progressive step. "In a city like Mumbai, where real estate prices are among the highest in the country, reducing stamp duty can make property transactions more affordable and stimulate market activity," he explains.

According to Romell, the increase in the long-term capital gains tax rate to 12.5% from 10%, along with a new exemption limit of Rs 1.25 lakh per year, and the rise in the short-term gains tax rate to 20% from 15%, will have a mixed impact. Real estate, which has had a 20% long-term capital gains tax rate so far, will benefit; however, it increases the tax burden on investors in other sectors. He adds that this could lead to a more stable and less speculative real estate market in the long term. "Indexation is removed, so effectively, the tax may be the same or even higher than today, especially for historical properties," he said.

Though the Budget strayed away from making any big-ticket announcements that would put the sector into the hop-skip-jump path to inundated growth immediately, key announcements in the infrastructure and transport sector are also likely to influence the realty market. Experts share that with the betterment of overall infrastructure, real estate markets will also receive a boost.

According to Mr. Ravindra Pai, Managing Director, Century Real Estate, the Interim Budget for 2024-25 which was presented in February, emphasised infrastructure development, putting significant money into improving connectivity and urban living conditions, which are critical for real estate growth. Similarly, the Union Budget allocated Rs 11,11, 111 which is 3.4% of the GDP.

"Investments in infrastructure are likely to enhance the attractiveness of real estate in developing and underdeveloped areas that were previously inaccessible," Pai says expressing confidence. Since the Budget seeks to promote private sector investment in infrastructure through viability gap funding, along with enabling policies and regulations, he believes that it will further catalyze the growth of the real estate market. He adds that enhanced infrastructure in these areas will make them more desirable for both residential and commercial investments.

"Infrastructure improvement has traditionally escalated property value, opening new locations for development and augmenting existing connectivity," says Mittal. He anticipates that it may lead to further places turning out to be feasible for real estate, either residential or commercial.

The finance minister also announced the initiation of Phase IV of the PMGYS which is estimated to provide all-weather connectivity to 25,000 rural habitations.

"For real estate, improved infrastructure will reduce logistical challenges and construction costs, making projects more viable and profitable," he says adding that homebuyers can anticipate enhanced property values and better access to essential amenities and services due to improved connectivity and urban development.

Talking about Transit-Oriented-Development, which is a focus of this Budget for 14 large cities including Mumbai, Romell suggests that TOD plans will not only improve connectivity and reduce congestion but also enhance the livability and attractiveness of urban areas. He specifically highlights that Mumbai, lately ridden with space congestion, may forward to more sustainable and efficient urban development.

The development of industrial parks with complete infrastructure in partnership with state and private players across 100 cities under the National Industrial Corridor Development Program is anticipated to spur industrial growth, create employment opportunities, and boost economic activity. "For Mumbai, known as a financial and commercial hub, these developments will enhance its industrial and logistical capabilities," says Romell.

The Union government proposed ‘Bhu-Aadhar' in rural areas, a UID number for land and digitization of all urban land records as part of several land-related reforms in the Budget. Romell expresses that for developers in Mumbai, this means smoother and more secure transactions, reducing the risks associated with property disputes and unclear titles. He also anticipates that it will also facilitate better urban planning and management by providing accurate and accessible land data.

One of the key expectations this year by industry experts included the sector being granted industry status. Conferring industry status basically entails an inclusion in the State/Central industrial policy. "Granting industry status to real estate is another critical step we anticipate. This move will attract more investments, streamline processes, and elevate the sector's overall credibility, fostering a more robust and reliable industry," says ABC. However, it remains an expectation for yet another Union Budget season.

Similarly, many other key expectations by experts like rationalisation of GST, incentivising foreign direct investment, a significant reduction in regulatory bottlenecks, etc. remain topics for the next Budget. Regardless, experts maintain that the current provisions introduced in this Budget will positively impact the real estate market, boosting growth directly or indirectly.