Union Budget 2023-24: Insights from a real estate sector perspective
India must move to a higher quality of life index in next 15 years with New Age housing options for a New Age population
Are you consumed by thoughts of the upcoming Budget? Are you wondering what is in store for you and your business? You are not alone. The Union Budget is always one of the most closely tracked events by market participants such as investors, brokers, policymakers, etc.
As the Ministry of Finance outlines its plans to allocate money to various sectors and industries in the Budget, participants across the country wait with bated breath to analyse the impact it may have on their fields. While everyone focuses on needs, wants, and demands from the Budget, sometimes it’s helpful to step back and take a look at the trends and directions of the Budget over the last few years.
To give you that perspective (and hopefully alleviate some of your concerns), here are some overarching themes from the recent past that are worth noting ahead of the upcoming Budget
Four quadrants central to Budget
Living up to its focus on Sabka Saath, Sabka Vikas, the Indian Government has continued to allocate significant resources to and focus on key quadrants like infrastructure development (Gati Shakti), inclusive development, productivity enhancement, and investment, sunrise opportunities, energy transition and climate action, Financing and investments.
Under the PM Gati Shakti National Master Plan for Multi-modal Connectivity, the Government has invested heavily in the integrated planning and coordinated implementation of infrastructure connectivity projects.
Productivity Linked Incentives in Manufacturing have been another key priority. Unlike developed markets, India’s ability to employ youth in manufacturing at lower costs is our biggest advantage.
Facilitate more ease of doing business
I expect the Budget to offer avenues that facilitate more ease in doing business to enhance productivity. This would mean more and more capital expenditure for manufacturing to usher economic growth and provide velocity to the speed of growth addressing employment.
The Smart City Mission, the government’s flagship urban transformation scheme, continues its trajectory with many more cities across India now well on their way to a sustainable growth path. The impact of some of these policy decisions will be massive for the real estate sector. Residential real estate will particularly flourish.
India must move to a higher quality of life index in the next 15 years with New Age housing options for a New Age population, which will see a growth in per capita income from $2000 to $6000. There will be an increased supply of New Age models of living such as co-Living to tackle the looming quality housing shortage for Students and STEM (Science, Tech, Engineering & Maths) workforce in the early stages of their careers.
Another key benefit is that there will be a noticeable growth in the supply of A-grade commercial spaces across cities in proportion to the growth and need for modern workplaces.
Improvement needed in senior living facilities
One area that needs improvement is ‘Senior Living’ facilities. India’s senior citizens’ ability to afford to enjoy a ‘second innings’ has grown significantly. However, the same is not augmented with high-quality living facilities for this group. We need a significant increase in the supply of quality living facilities to cater to the increasing demand across the country.
Need for high capital investment
The sector will require a high capital investment for at least the next decade to finance these lofty growth dreams. The positive here? Global capital will have India as a bright spot to invest in given the government’s focus on prioritising the ease of doing business in the country.
Government treasuries must consider supporting through AIFs
The government will support RE alternative investment funds (AIFs) through its Fund allocation in the upcoming Budget. One can hope that the Budget will provide possibilities to broaden participation by allowing Government treasuries to support participation through AIFs.
Higher tax rebates sought for first-time home buyers
Residential real estate market participants are hoping for higher tax rebates for first-time home buyers, which will provide a much-needed boost.
Another strategically beneficial move will be to offer senior citizens beyond a certain age group tax rebates on the sale of properties to encourage reverse mortgage markets for better living conditions and also for funding their retirements.
Meanwhile, commercial real estate market participants will be hoping for tax breaks and benefits for buildings compliant with climate and environment norms and energy efficiency certifications. This will also encourage more players to follow green building norms, which aligns with the government’s priority for energy transition and positive climate action.
Raise tax deduction limit on home loan interest
The prospects of the real estate market look bright, especially for residential real estate. However, rising interest rates and inflation have hurt the buying power of homebuyers somewhat over the last few years. Increases in the tax deduction limit on the interest paid on home loans would negate this well. It is wise to remember that the real estate sector has historically always been solid and benefited from the annual budget.
Conducive changes in the upcoming session can provide a substantial impetus to the Indian real estate sector.
The writer is Founder & CEO – Integrow Asset Management & Director – Aurum PropTech Ltd (@AurumProptech). Views expressed are personal.
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