The Indian real estate market is resilient, with continuous year-on-year increase in commercial leasing activity and stable demand-supply dynamics in the residential segment. In recent years, the influx of GCCs in India, combined with solid hiring patterns in most domestic sectors, has fueled office leasing activity. In residential real estate, the high-end and luxury segments have seen an increase in demand and supply.

The interim budget 2024 focused on affordable housing, allocating Rs. 2.2 lakh crore over five years. The industry also welcomed the decrease of the long-term capital gain period for REITs from 36 to 12 months, which increased investment possibilities.

Other significant areas of concentration included transit-oriented development plans for 14 cities, the promotion of dormitory accommodation for industrial workers through VGF financing, and the extension of central support to urban/rural local authorities for property record digitization, among others.

Tax Structure Reforms

The industry's primary expectations for budget 2025 will remain focused on important issues such as improving ease of doing business through tax structure reforms, reviewing FDI restrictions to increase private and foreign investments in the sector, and increasing liquidity for developers. The following are significant requests from market participants for Union Budget 2026.

Review of deductions under the Income Tax Act - The deduction limit for interest paid under Section 24 and principal payment under Section 80C should be enhanced. This would boost low to midrange housing demand, which has been hampered by a lengthy period of high mortgage rates. This, combined with planned repo rate reduction in fiscal 2026, will boost the previously subdued demand in the aforementioned areas.                                    

Reducing cost inflation through input tax credits and policy support to stimulate investment - With current high material and construction costs, a revision of input tax credits to alleviate the burden on developers is a crucial requirement. Changes in taxation regulations and the review of FDI limitations to attract domestic and foreign real estate investments will offer developers the opportunity to raise the operating capital required for project execution.

Revision in affordable segment definition - A long-standing need for the sector is to examine the price cap of Rs. 45 lakhs for the affordable housing category, which was established in 2017. This requires an upward revision, particularly for Tier I metro cities, to widen the reduced GST rate benefits to a larger group of home buyers, hence increasing residential segment demand. The reinstatement of tax breaks for developers of affordable housing projects (section 80 IBA) will help accomplish the government's 'Housing for All' goal and relieve strain on urban housing markets.

 

Policy interventions to stimulate alternative sectors - While the issue of dormitory housing for industrial workers was addressed in the interim budget 2024, a unique tax incentive system is required to promote alternative housing sectors such as rental housing, student housing, and so on.

Tax incentive framework for sustainable development - Tax incentives for green building and financing for sustainable development would provide a much  needed boost to the commercial real estate sector while also increasing world wide investor interest.

Continued Infrastructure Investments - With rising urbanization outside Tier I cities, continued investments in connectivity and infrastructure will attract investment and promote real estate development in Tier II cities, opening the door for new urban centers.

As the sector anticipates the upcoming budget, one thing is certain: a well-crafted budget that recognizes the sector's needs will be a critical step toward establishing a robust and sustainable real estate ecosystem that benefits all stakeholders, including developers, investors, and, most importantly, home buyers.