Real Estate’s Expectations from Union Budget 2025-26

 Anuj Puri, Chairman – ANAROCK Group

As the Union Budget 2025-26 approaches, to be announced in February 2024, the real estate sector is pinning high hopes on the Modi 3.0 regime. Amid declining real estate activity in the second half of CY 2024, the sector anticipates government measures to revive overall consumption.

While tax reliefs and other incentives are standard expectations, the government is likely to maintain its focus on building robust infrastructure across the country. Though infrastructure development may not provide immediate relief to end-users, it remains a key driver for long-term growth in the real estate market.

The upcoming Budget is expected to emphasize maintaining economic stability and fostering growth, especially in light of the uninspiring GDP numbers from the past two quarters. Stimulus measures for SMEs, MSMEs, job creation, and skilling initiatives are anticipated to further propel economic activity.

Revive Affordable Housing

For the real estate sector, key expectations include industry status recognition and a revival of the affordable housing segment. Once a promising sector, affordable housing—homes priced under INR 40 lakh—has struggled post-pandemic, with demand and supply shrinking significantly. According to ANAROCK data, the sales share of affordable housing fell to a mere 18% in 2024 from over 38% in 2019. Similarly, its share of total housing supply in the top seven cities dropped to 16% in 2024 from nearly 40% in 2019.

This stark decline highlights the urgent need for intervention. Affordable housing requires focused attention and targeted benefits, which have been lacking in the past two years. Tax breaks to boost supply and enable buyers are crucial, but the challenges go deeper. A critical issue remains the lack of urban land, particularly in areas where affordable housing is most needed.

To address this, the government could release centrally controlled land—managed by agencies like the Indian Railways, Port Trusts, and the Department of Heavy Industries—for affordable housing projects. Additionally, the following measures are essential:

1. Reintroduce the Credit-Linked Subsidy Scheme under PMAY
   The scheme for EWS/LIG households, which expired in 2022, should be reinstated to incentivize first-time buyers of affordable homes. It could also extend to loans for new construction or adding essential features like rooms, kitchens, or toilets to existing properties. Under PMAY (Rural), subsidies could help convert ‘kaccha’ homes into ‘pucca’ ones, provided eligibility criteria are met.
2. Restore the 100% Tax Holiday for Developers
   The tax holiday under Section 80-IBA of the Finance Act, 2016, was a major incentive that boosted affordable housing supply. Reintroducing this benefit could be transformative, offering substantial tax breaks to developers focused on affordable housing projects.
3. Revise Affordable Housing Criteria
   Current definitions of affordable housing, based on size, price, and buyer income, require urgent revision. While the size criterion (60 sq. m. carpet area) is reasonable, the price cap of INR 45 lakh is unrealistic in high-cost cities like Mumbai. The cap should be raised to at least INR 85 lakh in Mumbai and INR 60-65 lakh in other metro cities to reflect market realities. Such revisions would enable more properties to qualify as affordable housing, granting buyers access to lower GST rates (1% without ITC) and other subsidies.

CY 2024 saw a slowdown in real estate due to general and state elections, with housing sales in the top seven cities declining by 4% to approximately 4.46 lakh units and new launches dropping by 7% to around 4.13 lakh units, as per ANAROCK research. However, with appropriate boosters for affordable housing, CY 2025 could bring a revival, helping the residential segment regain its 2023 highs in sales and launches.