Union Budget 2024: Real estate sees marginal benefits

Will the increased outlay for the government’s credit-linked subsidy scheme in the Union Budget revive the affordable housing segment, which has been on a decline since the pandemic?

Covering a wide spectrum of Indian sectors, the first Union Budget of Modi 3.0 focused on MSMEs, employment, skilling, youth, and the middle class. Yet, the Budget as such has failed to address several concerns of the real estate sector, including direct incentives to boost the affordable housing sector. It was widely anticipated that affordable housing will get a major boost in the current Budget because its performance has been on a decline.

With an eye on the housing needs of the urban poor and the middle class, the government has announced that it intends to construct an additional one crore homes under PMAY Urban 2.0 with an outlay of ₹10 lakh crore. It remains to be seen how effectively this would work for the benefit of those in the affordable housing segment.

Mega allocation for the Hyderabad-Bengaluru industrial corridor and Vizag-Chennai corridor will boost growth along these corridors and consequently boost real estate growth there. The Finance Minister also tried to rejuvenate the MSME (Ministry of Micro, Small and Medium Enterprises) sector, which does have a multiplier effect on overall economic growth — with the implied positives for real estate being a collateral beneficiary of such growth.

The credit guarantee scheme for MSMEs will help provide impetus to overall industrial development, and this can have a rub-off effect on the real estate sector. The pandemic had a catastrophic impact on the MSME sector, which slowed down the demand for affordable housing from 2020. Affordable housing demand may gain momentum once the economic impact of the pandemic subsides for this target audience.

This is certainly pertinent — the affordable homes category (less than ₹40 lakh) has been seeing a decline in overall sales since the pandemic, to approximately 19% in H1 2024 from over 38% in the period before the pandemic in 2019. Consequently, this segment’s percentage share of the total housing supply in the top 7 cities also fell to 18% in H1 2024 from nearly 40% in 2019. Any boost to this vital segment is therefore welcome.

For individual taxpayers under the new tax regime, the increased standard deduction limit to ₹75,000 from the previous ₹50,000 along with the new income tax slabs implies savings, but hardly enough to boost housing demand.

With regards to the withdrawal of indexation benefits announced in the Budget, factors such as the amount of appreciation will determine whether the new tax (minus indexation) will be advantageous or disadvantageous for sellers. It is best to consult a tax expert for this, but as it seems now, when the difference between the purchase price and the sale price (in a 10-year period) is higher (say, more than 2-2.5 times), then the new tax regime without indexation is more lucrative for the buyers.