Real Estate Sector Hopes for Tax Relief & Infra Boosts in Budget 2025

Anuj Puri, Chairman of ANAROCK Group, highlights the real estate sector's anticipation for the upcoming Union Budget 2024-25, expecting tax reliefs and sentiment boosters from the Modi 3.0 regime. The industry's future relies on robust infrastructure deployment to enhance urban living and develop new areas. Key questions for the budget include whether the government will grant industry status to the entire housing sector and take measures to revive the declining affordable housing segment post-pandemic.

In 2024, the Indian housing sector saw record highs, with sales reaching 4.93 lakh units and new launches at 4.47 lakh units in FY23-24. However, the growth mainly favored mid-range and premium housing, neglecting affordable housing needs.

ANAROCK Research indicates a sharp decline in affordable housing sales from over 26% in 2022 and 38% in 2019 to about 20% in Q1 2024. The segment's supply in the top 7 cities also dropped to 18% in Q1 2024 from nearly 40% in 2019. To revive this crucial segment, high-impact measures such as tax breaks for developers and buyers are necessary to enhance affordability and stimulate interest.

Other measures to reignite affordable housing would be:

Credit-linked subsidy scheme under PMAY

This scheme for EWS/LIG, which expired in 2022, should be revived to incentivise first-time buyers of affordable homes across cities. This will onece again invigorate demand in this segment. Subject to criteria specified under government guidelines, CLSS was previously available for housing loans to EWS/LIG buyers in new constructions, and for the addition of rooms, kitchen, toilet etc. to existing dwellings. Also, under PMAY (Rural), one could avail of this subsidy for all 'kaccha' homes being converted into 'pucca' ones, provided they fulfil the eligibility criteria.

Re-introduce 100% Tax Holiday for affordable housing developers

To boost supply and incentivise developers to build more affordable housing, the government can re-introduce the ‘100% Tax Holiday’ benefit they previously enjoyed under section 80-IBA in the Finance Act, 2016. This section provided for major tax relief on the profits earned from developing and building affordable housing projects.

Tweak definition of affordable housing criteria to widen additional deductions benefits to more buyers

According to the Ministry of Housing and Urban Poverty Alleviation, affordable housing is defined based on property size, price, and buyers’ income. For instance, affordable housing is a house or flat with carpet area up to 90 sq. m. in non-metropolitan cities and towns, and 60 sq. m. in major cities and valued up to ₹45 lakh for both. The central bank’s definition, on the other hand, is based on the loans given by banks to people for building a house or buying apartments.

The government must seriously reconsider revising the pricing of homes within the affordable housing budget, taking into consideration city-specific market dynamics. As per the current definition, the size of units at 60 sq. m. carpet area is appropriate. However, prices of units (up to ₹45 lakh) are not viable across most cities.

For instance, for a city like Mumbai, a <₹45 lakh budget is meaningless. It would need to be increased to at least ₹85 lakh. In other top cities, the budget should be increased to at least ₹60-65 lakh. With such price revisions, more homes would qualify for the affordable price tag, so more buyers can avail of benefits such as lower GST rates at 1% without ITC, government subsidies, etc.