As the Union Budget 2025-26 approaches, the real estate and construction sectors are brimming with anticipation for reforms and incentives that could revitalize an industry that contributes significantly to India’s GDP. With the government’s continued focus on housing for all, infrastructure development, and urbanization, the real estate sector looks forward to pivotal announcements that address housing affordability, taxation, and liquidity.
Real estate and housing sector: A vital pillar of the Indian economy
The real estate sector is the second-largest employment generator in India, contributing nearly 7% to the GDP and projected to reach a market size of $1 trillion by 2030. However, challenges such as high costs of land acquisition, liquidity constraints, delayed project completions, and regulatory burdens have hindered its growth. The upcoming budget is seen as a golden opportunity to provide targeted relief, fostering housing demand and facilitating the seamless growth of infrastructure projects.
Expectations from Budget 2025-26
- Reforms in GST for real estate
The current GST regime poses significant challenges for the real estate sector, particularly due to the lack of Input Tax Credit (ITC). Developers are unable to claim ITC on materials like cement and steel, which constitute 60-65% of construction costs. Aligning ITC policies with construction services would reduce project costs by up to 10%, making housing more affordable for buyers.
Additionally, the sector demands:
No GST on affordable housing: Completely removing GST on affordable housing can stimulate demand in this critical segment.
Option to choose GST Mechanisms: Developers should have the option to choose between 5% (without ITC) or 12% (with ITC) GST rates, as the latter is a pass-through mechanism that ensures cost neutrality.
Revised definition of affordable housing: The current cap of Rs 45 lakh for affordable housing is outdated. In metropolitan cities like Mumbai, a separate affordable housing index should be introduced with higher thresholds to reflect market realities.
- Stamp duty concessions
Stamp duty forms a significant portion of transaction costs in real estate. Targeted reductions in stamp duty can stimulate the market:
1% stamp duty for women homebuyers: Encouraging women to invest in property through lower stamp duty would promote financial empowerment and gender equality.
1% stamp duty for specially-abled citizens: This concession would align with inclusive policies, enabling easier access to housing for differently-abled individuals.
- Premiums and approval charges
High premiums and approval charges significantly inflate the cost of private housing projects, making them unaffordable for a large segment of the population. Rationalizing these charges would:
Encourage private developers to invest in housing projects, particularly in urban and semi-urban areas.
- Enhancement of affordable housing benefits
Affordable housing continues to be a focal point of government policies, with the Pradhan Mantri Awas Yojana (PMAY) scheme delivering substantial progress. Developers believe:
Extending the credit-linked subsidy scheme (CLSS) and raising the cap on unit pricing for affordable housing (from Rs 45 lakh to Rs 60 lakh in metro cities) can align with the market’s realities.
Introducing long-term tax benefits under Section 80EEA for first-time homebuyers would boost demand in this segment.
- Reduction in GST for Under-Construction Properties
High GST rates on under-construction properties deter buyers. A reduction from 5% to 3% for mid-segment housing could enhance affordability without impacting fiscal balance.
- Special Incentives for Green and Sustainable Construction
To promote eco-friendly development, the budget should:
Offer tax holidays and subsidies on green construction materials and technologies.
Introduce a green housing index to rate and incentivize projects based on sustainability metrics.
- REITs and InvITs
Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) have emerged as important vehicles for capital mobilization. The government should:
Remove double taxation on dividends distributed by REITs/InvITs.
Introduce tax exemptions for long-term capital gains on REIT units to encourage retail participation.
Construction Costs: Rationalizing GST and ITC policies could reduce construction costs by 10%, significantly impacting housing affordability.
The Union Budget 2025-26 holds immense potential to provide targeted relief and reforms for the housing, real estate, and construction sectors. From enhancing tax benefits to promoting green construction, the expectations are centered on stimulating demand, reducing costs, and ensuring equitable growth. By addressing these areas, the government can set the stage for a robust housing ecosystem that aligns with its vision of “Housing for All” while contributing to economic development and employment generation.
Source #ET
