by Vimal Nadar, Senior Director & Head, Research, Colliers India
The Union Budget 2024-25 underscores nine priority areas focusing on infrastructure, urban development, industrial expansion, manufacturing augmentation, employment generation & upskilling, and sustainability. The Budget continues to lay the groundwork for the next phase of economic growth in which infrastructure, construction, and real estate, by virtue of the ripple effect, will support India’s journey in becoming the third largest economy by 2030.
On the real estate front, increased allocations under the Pradhan Mantri Awas Yojana (PMAY) scheme, rationalisation of stamp duty charges for women homebuyers, and focus on rental housing for industrial workers are promising developments for the residential segment. Announcements in the industrial and manufacturing segment including development of industrial parks are set to foster economic development and job creation across all regions of the country. REITs getting treated at par with other listed equity shares and removal of indexation benefit on LTCG on real estate assets were some of the highlights of the budget. Furthermore, increase in disposable income under the new tax regime through additional deductions and slab revisions can amplify investments across real estate asset classes.
Positives for Indian real estate
Real estate stakeholders have applauded the recent budget for its role in creating multiple investment opportunities across asset classes.
Infrastructure and urban development driven real estate growth across segments
With an allocation of INR 11.11 lakh crore for infrastructure, equivalent to 3.4% of GDP, and provision of INR 1.5 lakh crore interest-free loans for state infrastructure projects, the government aims to revitalize cities and create an enabling environment for equitable growth. Key initiatives such as Polavaram irrigation project, comprehensive development of major nodes along Vishakhapatnam-Chennai, Hyderabad-Bengaluru and Amritsar-Kolkata industrial corridors and Transit Oriented Development (TOD) plans for 14 large cities are poised to create multiple economic and real estate hotspots across the country. Industrial & warehousing segment along with residential and commercial real estate will get a significant boost particularly in Tier II cities. Additionally, the allocation of INR 15,000 crore to Andhra Pradesh will accelerate greenfield development in and around its capital region. The budget also highlights plans to transform tourist & pilgrimage centers such as Bihar’s Bodh Gaya, Nalanda, Rajgir, and Odisha into attractive global destinations, simultaneously driving demand for branded hotels, housing and retail assets.
Long-term growth opportunities in industrial and warehousing segment
Key initiatives such as the development of 12 industrial parks under National Corridor Development Programme and ‘plug & play’ industrial parks in 100 cities stand to benefit the industrial and warehousing segment in the long-term. Furthermore, support to manufacturing and impetus to logistic efficiency improvement can translate into high quality industrial and warehousing supply infusion over the next few years. Additionally, with the creation of E-commerce export hubs and reduction of TDS rates to 0.1% for E-commerce operators, incremental warehousing demand from E-commerce players is envisaged for the long-term.
Direct and cascading positive implications for the housing segment
An allocation of INR 10 lakh crore under the aegis of Pradhan Mantri Awas Yojana will fast track the construction of additional housing units in rural and urban areas and is a welcome step for closing the demand-supply gap in affordable housing segment. Rationalisation of stamp duty across states, especially for women homebuyers will provide impetus to housing sales across the country. Interestingly rental housing accommodation for industrial workers will benefit from Viability Gap funding (VGF) and financing in Public Private Partnership (PPP) mode. Additionally, with revision in tax slabs under the new tax regime and increase in deduction limits, disposable income can potentially increase and cascade down as investments across real estate asset classes, particularly residential real estate.
Skill development, start-up and MSME push can provide tailwinds to real estate activity
The Budget aims to boost innovation and employment by upgrading 1,000 Industrial Training Institutes (ITI) over the next five years in hub & spoke model, benefitting around 20 lakh youth. Furthermore, with an outlay of INR 2 lakh crore, the government has announced five schemes to specially focus on employment and skilling opportunities. Notably the budget has emphasized upon Micro, Small and Medium Enterprises (MSMEs) by introducing Credit Guarantee Schemes alongside a self-financing guarantee fund of up to INR 100 crore. Interestingly, a long-standing industry demand has been met in the form of abolishment of Angel Tax. Such forward looking initiatives will not only drive innovation but also result in higher employment opportunities and potentially translate into real estate growth especially in Tier I cities
Overall enhancements in ease of doing business and digitization
The budget announcement pertaining to Jan Vishwas Bill 2.0 is a significant step towards enhancing the ease of doing business. Additionally, the central government will be incentivising states for digitisation of land records and implementation of Business Reforms Action Plans as well. Overall, the steps are expected to enhance investor confidence by streamlining processes and minimizing hurdles, thereby promoting a more conducive business environment. Announcements for strengthening of debt recovery tribunals and setting up of Integrated Technology Platform can ensure consistency, transparency and better stakeholder oversight. Moreover, simplification in FDI and overseas investment rules, and corporate tax reduction for foreign companies (from 40% to 35%) will aid in attracting foreign-origin investments across sectors including real estate.
REITs and real estate investments get a boost
Retail investor participation in REITs is set to get a further boost from the parity in treatment with other listed equity classes. The Union Budget has reduced the holding period for REITs from 3 years to 1 year. Additionally, the exemption limit of INR 1 lakh for Long Term Capital Gain (LTCG) on these assets has also increased to INR 1.25 lakh. Interestingly, LTCG on sale of real estate assets shall now attract 12.5% tax without property indexation, revised from 20% with indexation. The tax implication will depend upon extent of price appreciation and holding period of asset.
Pending wish list for real estate stakeholders
While the Union Budget 2024 addressed several expectations of the real estate sector, some of them could not make it to the list. These include:
- The longstanding demand for grant of ‘Infrastructure’ status which could significantly ease access to institutional credit and reduce borrowing costs for developers, fostering growth and investments
- Standardisation and rationalisation of ‘Affordable Housing’ definition across government schemes and financial institutions which can help eligible homebuyers qualify for category specific financing options
- Allocation of separate & higher deduction for housing loan principal repayment (currently capped at INR 150,000 under section 80C) and increasing the tax deduction limit of interest component in case of self-occupied property (currently at INR 2 lakhs)
- Extension of tax benefits under 80EEA which was applicable for loans (first time homebuyers in affordable housing segment) availed till March 2022 and increasing the current capping of INR 150,000
- Tax holiday for green buildings and incentives through minimum alternate tax or tax breaks similar to infrastructure sector
- Incentivising investment in green bonds and extending subsidies for players in electric vehicle value chain under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme
Although certain gaps remain unaddressed, the Union Budget has laid down the blueprint for equitable real estate growth. Overall, the budget has the potential to create sustainable growth and investment opportunities across real estate asset classes.
