 "Budget 2023: Proposals deliver well-aimed strategy expected to boost cross-sectoral growth")
n times of rising global uncertainties and shrinking growth, India retains its position as the fastest-growing major economy in the world. Estimated to grow at a rate of 7 percent, there is enough optimism in the market, and Budget 2023 has delivered a well-aimed strategy that is expected to push cross-sectoral growth on the foundation of capital investment, infrastructure building, technological advancement, and sustainability. Though real-estate-specific reforms were limited, the Budget announcements are expected to have several multiplier effects, which will consequently boost activity in this sector.
Infusing more money into the economy: Capex and personal taxation changes
The increase in the capital investment outlay by 33 percent to Rs 10 lakh crore highlights the continued emphasis on infrastructure-led growth and the resultant multiplier effect. Every rupee spent on capex has a multiplier of Rs 3 as compared to Rs 0.9 for revenue expenditure. This, thus, will result in more financial activity, thereby promoting growth and employment, and in lieu expand commercial, warehousing, and retail segments of the real estate sector. Expanding commercial real estate also impacts residential real estate positively. Further, the Budget’s promotion of tourism is expected to spur growth in the hospitality sector of real estate.
Revision of tax slabs
To further stimulate economic activity, the government declared a revision of tax slabs under the new tax regime. This promising move to slash tax rates is expected to increase people’s disposable income and raise consumer spending. For instance, according to the Finance Minister, individuals earning more than Rs 15.5 lakh per annum will benefit by at least Rs 52,500. This income, which is being saved, is expected to be channelised into various investment options.
A recent consumer sentiment survey shows, 59 percent of the respondents considered real estate as the preferred asset class for investments. Hence, the saved income can be expected to be invested in real estate. As the Budget further pointed out, with the proposed changes in the tax structure, the government will forego an expected revenue of Rs 35,000 crore. This additional amount, which will circulate in the economy, is expected to increase consumption, and a portion of that can be received by the real estate segment in the form of investments. However, contrary to industry expectations, the Budget did not provide any concession on increasing the limit of home loan interest deduction on income tax returns, which would have had a direct, positive bearing on the sector.
Quick Reads
View AllHousing for All
The Housing for All mission received a strong impetus with an increase in outlay for the Pradhan Mantri Awas Yojna (PMAY) INR79,000 crore. This is a 66 percent increase from last year’s Budget allocation of Rs 48,000 crore, which again was 75 percent higher than the Rs 27,500 crore budget allocation in 2021. Of the 122.69 lakh houses sanctioned to date, 68.02 lakh houses have been completed, and this recent infusion is expected to give a boost to the affordable housing sector. (Source: Union Budget Documents)
No revision on cap for affordable housing
There has been no revision of the price cap of affordable housing, and while the industry had hoped that the Budget can moderate the Goods and Services Tax (GST) rates for construction materials, this has not happened, and price moderation under this segment will continue to be a concern. But with people expected to have more disposable income now, especially among lower-income and middle-income groups, what remains to be seen is whether the affordable housing segment will gain from the personal taxation reforms.
Urban infrastructure and sustainability
The finance minister also laid emphasis on undertaking urban reforms to transform cities into ‘sustainable cities for tomorrow.’ An Urban Infrastructure Development Fund (UIDF), to be managed by the National Housing Bank, will be established, which will be used by public agencies to improve urban infrastructure in Tier 2 and Tier 3 cities. Sustainable urban development is a global focus now as countries aim to mitigate the climate crisis without affecting growth. The Asia Pacific Sustainability Index 2021 lists four Indian cities in the top 20 sustainable cities worldwide, and with this latest push towards greener growth, the number of sustainable cities can be expected to increase, spurring more activities in commercial real estate.
While Budget 2023 did not announce any direct measures for the real estate sector and once again stepped aside the issue of awarding it the industry status, the real estate sector has reasons to be optimistic. It performed exceedingly well in 2022, capitalising on the post-pandemic market recovery, and is expected to retain this growth momentum benefiting from the two pillars of capex and tax reforms in this financial year.
The writer is Co-head and COO-India Global, KPMG in India He tweets @KPMGIndia Views are personal.
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