Path to a $7 tn economy: Why real estate has a crucial role to play

India’s real estate (RE) sector has long been one of the key drivers of economic growth, contributing 7 per cent to the nation’s GDP. The sector’s performance in 2024 has been strong with both residential and commercial RE segments showing notable growth. For instance, India’s housing market has seen a 60 per cent growth since 2019, with premium housing driving much of this demand. Consumers today are interested in comprehensive townships offering community-focused living, sustainable developments and advanced tech-enabled amenities like AI-driven security systems and automated solutions.

Similarly, the commercial RE segment is also showing strong growth. With Global Capability Centres (GCCs) on the rise, steady hiring trends and the return-to-office culture, demand for flexible and tech-enabled office spaces is soaring. These trends, combined with India’s expanding IT and services sector, are making commercial RE a lucrative investment avenue.

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For India to achieve the desired pace of economic growth, it will be crucial to further enhance the RE sector by providing strategic incentives and resolving underlying complexities. The upcoming Union Budget 2025 offers an opportunity to introduce targeted measures that can sustain and further grow this momentum.

First, the government can consider measures to revive affordable housing. The segment, which was once thriving, has faced headwinds in recent years. Post pandemic, both demand and supply have seen a sharp decline. To revive this segment, the government can consider revisiting the affordable housing price cap. Raising it from Rs45 lakh to Rs75–80 lakh would better reflect current market conditions and inflation, particularly in high-cost cities like Mumbai and Bengaluru. This adjustment could expand access to GST benefits and incentives, attracting more first-time buyers and rejuvenating demand. With this, RE can be made more accessible, aligning with the government’s broader vision of housing for all.

Second, the government can consider increasing the home loan interest deduction limit from INR2 lakh to INR5 lakh. This adjustment would reduce taxable income, resulting in substantial tax savings and making home ownership more financially attainable. Over years, despite rising property prices and interest rates, the current deduction limit has remained unchanged. The move to revise the limit, a long-standing demand from the sector, can potentially increase housing affordability, attracting more of India’s young consumer base and stimulating the overall economy.

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Third, as global investors are now increasingly prioritising ESG principles, sustainability has become non-negotiable for the RE sector. To align with these evolving priorities, the government can consider introducing measures like tax incentives for green buildings, subsidies for more renewable energy adoption, incentives for adopting advanced construction tech, software and machinery and increasing grants for enhanced eco-friendly developments across the nation. Additionally, providing capex subsidies to contractors can also encourage large-scale adoption of these technologies. These developments can not only attract more investments but also position India as a leader in sustainable RE, making the sector more globally competitive. Besides, the government can consider streamlining project approvals and implementing a single-window clearance mechanism, making the sector more efficient and attractive for institutional investments.

Finally, rapid urbanisation beyond tier-1 cities is unlocking numerous growth opportunities for the RE sector. Today, tier-2 and tier-3 cities are emerging as vibrant urban hubs, driven by rising economic activity and improved living standards. Last year, the budget set a record with a capex allocation of INR11.11 lakh crore. Building on this momentum, this year’s budget can further accelerate infrastructure developments, such as roads, metro networks and airports, enhancing seamless connectivity across the country. Provisions can also be made to address underlaying challenges, such as delays in land acquisition and regulatory complexities. Addressing infrastructure bottlenecks and creating well-connected urban clusters can pave the way for more long-term investments from both domestic and global players, ensure balanced regional development and create more opportunities for housing, commercial spaces and industrial hubs across India. Also, with rapid urban development, the demand for rental housing, student accommodations and housing near industrial townships is rising. The budget can introduce special tax incentives to encourage organised development of these segments and attract large-scale institutional investments. Besides, more focused can be laid to ensuring the availability of essential civic amenities to support these initiatives.

By 2030, India is estimated to touch the $7 trillion GDP mark and the RE sector will have a crucial part to play in it, contributing about 10 per cent to this growth. The Union Budget 2025 provides an opportunity to implement bold and forward-looking measures to make the sector more efficient, accessible and sustainable. With the right set of policies, the sector can continue to grow and meet the evolving needs of India’s consumers and businesses.

The author is Partner & Head India Global, KPMG in India. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.