Union Budget 2025: How government policies will shape real estate sector

As India awaits Finance Minister Nirmala Sitharaman’s Budget announcement, anticipation is building across sectors and households. Ordinary citizens are looking for tax relief, while industries such as technology, healthcare and finance hope for targeted reforms to increase growth. Similarly, the real estate sector stands at a pivotal moment. Closely tied to fiscal policies and regulatory frameworks, the sector’s future depends on measures that address key concerns like affordability, liquidity, and sustainability.

Addressing affordability through tax reforms

Property and construction costs have steadily risen, making homeownership challenging for many. Increasing the tax exemption limit on housing loans to Rs5 lakh could align with the evolving needs of buyers, providing much-needed relief and ensuring housing remains accessible and attractive. Similarly, revising deduction limits under Section 24 and Section 80C of the Income Tax Act could stimulate demand in the affordable to mid-segment housing market, particularly in a high-interest-rate environment. Coupled with potential repo rate cuts in fiscal 2026, these reforms could revive demand in critical segments.

The Rs45 lakh price cap for affordable housing, established in 2017, has become outdated, especially in Tier I cities where property values have surged. An upward revision of this cap would expand the lower GST rate benefits to a broader pool of buyers, enhancing demand. Additionally, reinstating tax exemptions for affordable housing developers under Section 80 IBA could further the government’s Housing for All initiative while addressing urban housing pressures.

Allowing input tax credit on GST

The current GST structure significantly burdens developers, often translating into higher costs for buyers. Allowing input tax credits could alleviate this pressure, enabling developers to price properties more competitively. Policy revisions to facilitate foreign direct investments (FDI) could also attract private and global funding, ensuring developers have adequate capital for project execution.

Infrastructure Development

The government is expected to increase infrastructure spending to support projects such as smart cities, highways, and rural connectivity. These investments are crucial for creating employment and boosting economic growth, especially amid slower GDP growth. In the 2024-25 Budget, Rs11.11 trillion was allocated to the sector, reflecting an 11.1 per cent increase. However, issues like land acquisition delays, limited private participation, and insufficient focus on sustainability remain unresolved. Over 60 per cent of central projects face delays, with significant cost overruns. Addressing these challenges, improving private sector involvement, and ensuring better safety and quality measures will be essential for driving growth to achieve the necessary goals.

Driving Growth in Tier II Cities

The Interim Budget 2024 emphasised infrastructure development and urban innovation. Continued investments in connectivity and urban infrastructure will catalyse real estate growth in Tier II cities, turning them into vibrant urban centres. These investments will attract new residents and businesses, broadening the real estate market.

The Union Budget 2025 represents a pivotal opportunity to address the real estate sector’s pressing challenges. Policies that prioritise affordability, ease of doing business, sustainability, and infrastructure development will benefit developers and investors and make housing more accessible for homebuyers. A thoughtful budget could serve as a blueprint for an inclusive real estate ecosystem that thrives in a rapidly urbanising India.

The author is Managing Director, Omaxe Ltd. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.