The Union Budget of 2023-24 was one of the most anticipated announcements, presented by the Finance Minister, Ms Nimala Sitaraman, on 1 Feb 2023. The budget represented the aspirations of the common man and India Inc. because it charts the course of the economy on its post-COVID-19 recovery path. It is also the first 'Amrit Kaal' budget - a term used by the government to represent the anticipated growth of a self-reliant and glorious economy as we move from 75 years of independence to a century.
What is the impact of the budget on the country's real estate sector?
Let's take a look.
1. Smart Cities
FM Sitaraman has announced the allocation of INR 16000 crore towards the government's Smart City Mission. This outlay is expected to go towards urban planning, the development of sustainable capabilities, and the promotion of Tier II and Tier III cities into the league of smart cities. The development of 5G capabilities and leveraging the technology to make Indian cities more sustainable and developed is likely to be the focus of policy decisions.
2. Infrastructure Development
The Union Budget 2023 has proposed a capital investment outlay of INR 10 lakh crores, allocated towards infrastructure and development. This is nearly 3.3 % of the GDP and is a 33% increase over the previous allocation. While not directly feeding into the real estate sector, infrastructural development is likely to impact the country's growth in a very positive way and real estate, too, will benefit. From the development of suburbs to increased purchasing power in the hands of the common man, the housing market will certainly gain from this announcement.
3. Affordable Housing
Taking forward the government's focus on affordable housing, this year, the budget has set aside INR 79,000 crore for the Pradhan Mantri Awas Yojna. This is a 66% increase over the previous year's outlay. 2022 did not witness the anticipated enthusiasm from home buyers in the affordable housing segment, and this allocation should help bridge the supply-demand gap.
4. Going Green
The move towards a sustainable, green world found a central role in the union budget. The Green Credit Programme announced by the budget incentivises individuals and corporations to move towards a more carbon-conscious and sustainable way of living. The programme is likely to be announced under the aegis of the Environment (Protection) Act, and the real estate sector is looking forward to leveraging these policies. The move into sustainable construction with ergonomic, environment-friendly material is already underway, particularly in the Tier 1 cities of the country. The specifics of this programme are highly anticipated by key players.
5. Increase in Real Estate Investment
Another heartening news for the real estate sector came with proposed tax relief for REIts and InVITS. The government proposes to treat the income distributed by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs) as debt repayment. This means that unitholders will find considerable relief in tax, and REITs will further attract more investors. These changes will be made through amendments to the Finance Bill of 2023.
Experts also feel that by promoting entrepreneurship and skills development, the government has, in turn, provided a boost to the demand for commercial spaces and offices.
6. Looking Ahead
While key players in India's real estate industry agree that the Union Budget 2023 is a balanced one that focuses on the fundamentals of infrastructural development, it has also left many underwhelmed. There were several sectoral expectations that were not addressed.
The budget proposes that the deductions from capital gains on investment in immovable assets (such as residential properties) be limited to INR 10 crore. This concerns the specifications of Sections 54 and 54F of the Income Tax Act. This could curb investment in luxury properties by HNI investors and does not encourage the promotion of real estate as an asset class.
Another key expectation that remained unaddressed by the budget is the reduction of GST on under-construction properties. Currently, Goods and Services Tax is applicable at 1% on affordable housing and 5% on all other segments of under-construction projects. Industry experts had expected this to be reduced to 1% across the board to promote home buying. In addition, real estate experts had also expected announcements regarding a single-window clearance system that can help developers gain all the permits and clearances necessary for building projects instead of approaching various central, state, and local bodies. This would have greatly enhanced the ease of doing business in the sector, but unfortunately did not find a place in the FM's speech.
The investment in urban planning, development, and infrastructure came as good news to the real estate sector, but most were disappointed by the lack of focus on sectoral development. Regional players are now looking at the encouragement from state budgets for a major boost to development work.
