BUDGET EXPECTATIONS: REAL ESTATE

The growth in residential real estate sales has been healthy at 49%,in the top-seven cities (Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Bengaluru, Hyderabad, Pune, Kolkata, Chennai) in H1 FY2023, driven by improving affordability, competitive interest rates on home loans and robust end-user demand on the back of continuing aspirations for owning/upgrading homes. Increasing the income tax benefit on the interest paid on the housing loans to Rs. 0.4 million from Rs. 0.2 million can support the growth of the sector and have spillover benefits for other sectors. Additionally, raising the deduction limit under Section 80C could provide higher income tax benefit on the principal payment on the home loans. Further, enhanced tax concessions on income from renting housing properties and removing taxation on notional rental income on the second house (completed, non-self-occupied) can boost demand for new properties.

Schemes such as PMAY have played a pivotal role in improving home ownership and continued focus on budgetary and extra budgetary allocation to such schemes can improve the access to housing in the low- to mid-income segments of the population. The pending expenditure in PMAY is over Rs 1.0 trillion, while the allocation was Rs. 480 billion in FY2023 (budget estimate) and the same needs to be ramped up to Rs. 760 billion in the forthcoming Budget in order to meet the target of 50 million dwelling units under PMAY. There are 4.6 lakh stuck residential units in the country. To address the challenge of large stuck units, the SWAMIH fund was announced in November 2019 with a target to raise Rs. 250 billion out of which it raised Rs. 100 billion from the Government and the remaining from large institutional investors, including LIC, HDFC and SBI. An additional Rs. 520 billion is needed to support the completion of the stuck units.

The Government and the PSUs continue to hold significant, well-located and non-core land bank. While steps have been taken to monetise this in the past, additional thrust is needed to expedite the process of divestment/monetisation of the surplus land bank to improve the availability of land for real estate development. In the commercial real estate segment, incremental steps taken over the past years have resulted in a successful track record of REIT issuances. Further, steps taken to improve the ease of access to debt capital (from long-term investors - insurance and pension funds) and enhance retail participation can channel more investments into this segment.