Road Ahead for Growth of Infrastructure & Real Estate

Though this year's Budget continued to be positive and progressive for the growth of infrastructure and real estate sectors, more policy initiatives are required to sustain the growth of real estate, particularly residential real estate, which has seen a marginal decline in sales.
Vinod Behl

Infrastructure Sector

The FY26 Budget outlined an array of policy measures to boost infrastructure development, which is key to the growth of real estate and the economy as a whole. The Budget has made a higher allocation of INR 11.21 lakh crore for the infrastructure sector, with a special focus on pushing PPP funding by way of creating a 3-year pipeline of projects for implementation under PPP mode, besides creating an INR 1 lakh crore fund for redevelopment of cities.

States can now seek support from India Infra Project Development Fund Scheme to prepare PPP proposals. An outlay of INR 1.5 lakh crore under a 50-year interest-free loan to States for Capex, and incentives for reforms, is a major fund booster for undertaking infrastructure development. Seen in the backdrop of INR 30,000 crore increase in central Capex inflow to the States during April 2024 -January 2025, this assumes significance.

The Centre will also partner with the States to develop 50 tourist destinations across the country, besides providing infra connectivity to 120 new destinations, supporting smaller airports and helipads in hilly regions like the north-east.

A special committee on Infrastructure formed by the Finance Ministry is examining strategies across sectors such as roads, railways and ports to suggest steps for more funding through the PPP route, besides boosting foreign funding. The central Capex for infrastructure development will get an additional push by way of Asset Monetization Plan 2025-30, which will plough back INR 10 lakh crore of capital in new infrastructure projects. It is not just a central Capex boost; even the private capex has a positive outlook.

A recent FICCI survey says that 42 percent manufacturing companies (in line with government's expectations), have plans for investment, while private investments are also expected to gather pace, adding overall strength to GDP growth, which has slowed down.

There are several key developments and initiatives which will further strengthen infrastructure development. National Infrastructure and Investment Fund (NIIF) is planning a USD 2 billion private credit venture, backed by the Indian government and global investors.

In another encouraging development, Housing and Urban Development Corporation Limited (HUDCO) is set to get RBI’s nod for the Infrastructure Finance Company (IFC) by the start of FY26. This will help HUDCO to access cheaper funds, in turn bringing down the cost of borrowing. HUDCO will be deploying 75 percent of its assets for infrastructure lending – a major boost to infra funding.

The government is also working on measures to ease project financing. The RBI's draft norms outlining the prudential framework for project loan financing have been deferred till March 31 2026, and the government is mulling fresh negotiations with stakeholders on project financing early next fiscal to strengthen the existing regulatory framework and for harmonizing the norms across the lender banks and financial institutions.

What is really encouraging is that investments by the Central government agencies and Central Public Sector enterprises (CPSEs) have risen 11.5% YoY to Rs 6.79 lakh crore in the first 10 months of the current financial year. State-owned Hindustan Petroleum Corporation Limited (HPCL), according to CMD, K Rajneesh Narang, has chalked out a mega plan to invest INR 90,000 crore by 2030. A significant one-third portion of this outlay will be for green energy portfolio. HPCL is targeting a capex of INR 12,000 - 14,000 crore for FY26.

Both the government and private sector telecom operators have ambitious plans to bolster digital infrastructure. Airtel aims to double its broadband user base to 90 million over the medium term, amid rising demand for its 5G - based fixed wireless access (FWA) services. Notably, 5G-based FWA services are already live in more than 2000 cities. Airtel is at par with Reliance Jio with regard to its FWA footprint.

The Centre is providing INR 6000 crore more to BSNL for 4G expansion. The government has invested about INR 3.22 lakh crore in BSNL and MTNL as part of three revival packages since 2019, including roll-out of the 4G service.

The Central government's plan to ensure faster infusion of capital in new investment funds like INR 1 trillion Urban Challenge Fund with INR 10,000 crore allocated for FY26 for cities' growth and redevelopment; INR 25,000 crore Maritime Development Fund; INR 10,000 crore Fund of Funds (FOF) for startups; besides newly planned FOF for deep tech companies, will serve as major boosters for infrastructure growth.

Real Estate

This year's budget may well be termed as a growth-oriented budget for real estate with many positives, despite some shortcomings in terms of direct push to the sector.

There are several hits in the budget: amid rising home prices and unaffordability of property, the landmark policy initiative to make INR 12 lakh of annual income tax-free, is a big boost to increase disposable income and in turn elevate affordability. Provision of constructing 1 crore new urban houses and 2 crore rural houses under Pradhan Mantri Awas Yojana (PMAY), higher allocation of INR 23,294 crore and INR 54,832 crore under PMAY-Urban and PMAY-Gramin, respectively, for 2025-26; and reintroduction of interest subsidy under PMAY for first time home buyers of affordable housing, are key measures to boost budget housing.

Seen in the context of the share of affordable housing in the overall housing sales dropping by more than 50% during the past five years, these are crucial policy initiatives. Enhancing budget allocation of INR 50,000 crore for SWAMIH Fund by another INR 15,000 crore is an important measure to speed up construction of stalled affordable housing projects.

Providing access to alternate capital through streamlined regulation for REITs, tax relief to homebuyers of two self-occupied properties, besides proposed GCC framework for tier 2 & 3 cities to boost commercial office real estate, are other positives in the Budget. As infrastructure development holds key to the growth of real estate, the hike in infrastructure outlay is good for the sector.

Notwithstanding all these hits, there are many misses also in terms of effectively addressing the demand and supply side issues. The long pending demand of the real estate industry to raise the INR 45 lakh price cap of affordable homes, especially in metros and large cities in view of the hike in land prices and construction costs, has remained unmet. So is the demand for providing industry status to the real estate sector to facilitate easy and cheaper financing for developers of affordable housing.

Also, no tax relief to affordable housing developers has been announced in order to boost supply, especially as developers have curtailed the supply of affordable homes due to the unsustainability of business.

Further, nothing has been done to cut compliance costs for developers by promoting ease of doing business and speeding up approval processes. Also, the government has not taken any initiative to rationalize GST on construction materials and under-construction homes, besides bringing States on board to reduce stamp duty on home registration. On the demand side, there was a lack of enhancement on tax exemption limit on both principal amount and interest paid on home loans.

RBI, as a follow up to the Budget, has also taken a positive measure to cut interest rate. However, this marginal cut of 25bps may not do much to improve home affordability to boost demand, particularly as there is uncertainty over further rate cuts. In this backdrop, going ahead in 2025, the government needs to do some more lifting to boost demand and supply in order to ensure long-term sustainable growth of real estate.