The poll-bound FY’25 interim budget is devoid of populism and any significant measures for direct push to real estate, yet it creates a healthy ecosystem for the long-term and sustainable growth of the sector.
The progressive budget presents a blueprint for revitalizing real estate through enhanced allocations for infrastructure, tourism and innovation, besides boosting the flagship mission of ‘Housing For All’. The enhanced outlay of Rs 11.11 lakh crore which forms 3.4 percent of the GDP , together with increased focus on road, rail and air connectivity will create new real estate growth corridors beyond top cities. The upgradation of airports and creation of greenfield airports, especially for boosting regional connectivity together with a growing network of expressways, high speed trains will drive real estate growth in Tier 2 and Tier 3 cities. The focus on tourism will prove to be a major driver of real estate and infrastructure in Tier 2 cities, particularly boosting vacation/holiday homes, shopping centres and hotels and resorts.
The growth of Tier 2 and Tier 3 destinations will not only boost residential real estate , but commercial real estate as well . The trend of corporates dispersing their offices in smaller cities (satellite offices) will gain further momentum . The Rs 1 lakh crore of corpus allocated in the budget for long-term interest free/low-interest loans for promoting innovation, will give a further push to Global Capability Centres (GCCs) which in turn will drive commercial office realty. The GCCs along with push to green realty , will propel future-ready and responsible real estate – a major attraction for global institutional investors.
There is a budget proposal to add 20 million new affordable houses under Pradhan Mantri Awas Yojana (PMAY) – Gramin.. There is however no such proposal for urban housing in the budget though there is an announcement about the plan to launch an affordable housing scheme for the middle class , to promote home ownership in urban India. This is much needed especially as the demand and supply of affordable and mid-segment housing has considerably gone down at the cost of premium and luxury housing which has oflate gained significantly. There is a dip in the demand for price-sensitive affordable housing due to increased home prices and higher home loan rates. as repo rates increased by 250 bps over the last two years.
There are not enough incentives to stimulate home buying. Developers on their part have curtailed the supply of affordable homes because of low margins due to costly land and building materials and due to withdrawal of IT benefits for developing affordable housing. They are instead focusing on luxury homes which have lucrative profit margins.
According to industry data, the largest and most expensive residential market of Mumbai saw average flat sizes decrease from 840 sq ft in 2022 to 794 sq ft in 2023. According to Knight Frank data, the share of smaller sized apartments (500 sq ft and below) rose from 35 percent to 48 percent to beat unaffordability . In this backdrop there is an urgent need to take policy initiatives to boost housing . Some of these include industry status to real estate, easy and cheaper funding for this capital- incentive sector, single window mechanism , enhancing the Rs 45 lakh price limit for affordable homes to make more home buyers benefit from the incentivized PMAY .
As the interim budget has set the positive intent of the government to give a boost to real estate and infrastructure- the major drivers of GDP, one may see some positive policy measures in the upcoming full-fledged budget in this regard. Especially as there is a favourable environment in the form of a growing economy , declining inflation , improving business and employment sentiment . Going forward , amidst increasing confidence of global investors due to stable government and progressive reformative policies , real estate may well grow stronger as an investable asset class.
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