Budget 2024: Strategic roadmap for Indian real estate to reach USD 1 trillion by 2030

Gurugram, India, 16th July 2024 – Over the last 2-3 years, the real estate sector has seen robust growth across various asset classes led by strong demand and a favourable economic environment. With the full-fledged Union Budget for 2024 just round the corner, the real estate sector is eagerly waiting for policy measures that could determine the sector’s trajectory and the likely outcome for the next few years. Indian real estate has continued to remain upbeat during the first half of 2024 across all asset classes, a reflection of prevailing optimism in domestic markets. Office and residential sector witnessed steady growth, while institutional investments remained sturdy asserting positive business sentiments. Office leasing activity in H1 2024 across the six major markets of the country has already almost touched 30 msf, almost 20% higher than the corresponding period in 2023. Stable interest rates, moderate inflation levels and strong high-frequency economic indicators further supported demand growth across key real estate verticals.

Delivering on the expectations of stakeholders, the Union Budget 2024 has the potential to become a defining moment and can play a crucial role in the sector reaching USD 1 trillion by 2030. Stakeholders’ expectations for Union Budget 2024 are across diverse aspects, and encompass focussed announcements on housing, infrastructure, sustainability, affordability & liquidity enhancement, taxation reforms and regulatory simplification.

“The upcoming Union Budget 2024, under the newly elected government, is set to focus heavily on infrastructure development, a critical aspect for the real estate sector. With real estate sector expected to contribute 13-15% of the Indian GDP by 2030, stakeholders are hopeful for grant of ‘infrastructure’ status, a long-standing demand. This could significantly ease access to institutional credit and reduce borrowing costs for developers, fostering growth and investments. Additionally, standardisation in definition of affordable housing can improve consistency in financing criterion across institutions and potentially simplify access to credit for interested homebuyers within the segment.”, said Badal Yagnik, Chief Executive Officer, Colliers India.

Housing sector expected to remain at the forefront during Union Budget 2024

The momentum in residential real estate across major cities has been on the upswing for the last few years. Homebuyers and developers expect further impetus from the government in the upcoming budget. Targeted measures can buoy homebuyer sentiment, providing a demand-side boost and simultaneously alleviate pressing developer concerns, providing a supply-side boost.

Homebuyers’ wish list for budget include:

  • Separate & higher deduction for housing loan principal repayment (upto INR 500,000), currently capped at INR 150,000 under section 80C.
  • Limit on tax deduction on interest paid should be increased from the current INR 2 lakhs to about INR 4-5 lakhs in case of self-occupied property.
  • Extension of tax benefits under 80EEA which was applicable for loans (first time homebuyers in affordable housing segment) availed till March 2022 and increasing the current capping of INR 150,000.
  • Standardisation and rationalisation in “Affordable Housing” definition across government schemes and financial institutions can help eligible homebuyers qualify for availing lucrative financing options in the particular category.
  • Tax exemption on rental income to boost housing demand especially amongst investors.

Developers expect tax rationalisation and incentives for green buildings:

  • GST reduction on key raw materials such as cement, steel and aluminium will help in controlling project costs.
  • Re-introduction of Input Tax Credit (ITC) for under construction properties
  • 100% tax holiday for affordable housing projects under Section 80IBA can be re-introduced.
  • Increased fund allotment through SWAMIH fund for improving liquidity in stressed residential projects.
  • Extension of PMAY timelines beyond December 2024 encouraging greater developer participation in affordable housing segment
  •  For increased emphasis on sustainable development, tax holiday can be provided for green buildings. Incentivisation of green buildings through minimum alternate tax or tax breaks similar to infrastructure sector will be particularly beneficial.
  •  For development of senior living facilities, provision of tax-based incentives, relaxation in development charges and other supportive policy measures will provide a thrust to developers and institutional investors to increasingly foray in the segment.

Industrial segment expects supportive government policies and concessional tax rates

Stakeholders expect supportive government policies and higher allocation in infrastructure expenditure to provide a thrust to the industrial and warehousing segment. With government’s continued focus on development of multi-modal logistics parks and logistics corridor, clear governance mechanisms and an enabling environment would be pivotal for successful implementation and timely completion of logistics infrastructure. Improved and effective logistics network can be critical in demand growth for warehousing spaces, particularly in tier I & tier II cities. MSMEs also expect rationalization of GST in the initial years of establishment, subsidized loans and reduction in income-tax slabs. Further, there could be an increase in allocation of funds towards upskilling and vocational training in manufacturing sector which will spur growth in the sector. Key expectations include:

  • Rationalization of import-export tariffs expediting India’s integration into global supply chain.
  • Rationalization of GST for MSMEs in the initial years of establishment
  • Extension of concessional corporate tax rate of 15% for manufacturing start-up companies, which expired on March 31, 2024 to boost manufacturing in the country and support the Make-In-India initiative.

“Infrastructure has consistently been at the core of the budget and this is reflected in the invariable increase in outlay every year. Increased allocations towards infrastructure for increasing connectivity through roads, rail, ports and airports under the aegis of flagship schemes such as National Logistics Policy (NLP) and PM Gati Shakti, are likely to drive significant real estate growth in smaller cities. Moreover, clear governance mechanisms and an enabling environment would be pivotal for successful implementation and timely completion of logistics infrastructure. The overall emphasis on infrastructure can unlock the potential of tier II and III cities, fostering economic growth and urban expansion,” said Vimal Nadar, Senior Director, Research, Colliers India.

Increased budgetary considerations for a sustainable future

Sustainability and green initiatives are becoming increasingly important worldwide, and India’s real estate sector is following suit. Promoting investment in green bonds and renewable energy can help India achieve net-zero emissions by 2070 and meet sourcing 50% of energy needs from renewable sources by 2030. The government can consider incentivising users to replace grey hydrogen with green hydrogen, providing incentives for R&D particularly with respect to energy storage and transmission. Other key expectations include:

  •  Incentivising investment in green bonds and renewable energy business
  • Extended subsidies for EVs under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme, including light to heavy commercial vehicles.
  • Production-linked incentives for companies involved in EV charging stations and battery manufacturing. Viability gap funding for startups in battery swapping and on-demand battery technologies.

Enhancing ease of doing business in real estate

The upcoming budget should focus on enhancing the ease of doing business by further reducing compliance burdens. Simplifying the tax and regulatory framework for private equity players, venture capitalists, and start-ups will also help foster a healthy business environment. Key expectations include:

  • Reducing excess compliance and adopting a single-window clearance mechanism for new businesses
  • Expediting the digitization of land records, especially for industrial and commercial use

Keeping global uncertainties and financial volatilities in mind, overarching measures towards rationalization of taxes and increasing disposable income can be particularly well received. Expectations include measures aimed at easing the tax burden on individuals, possibly through revised income tax slabs, increased deduction limits, or other progressive reforms. Moreover, simplification of capital gains tax regime can also be a welcome move. Further, investments made in REITs can get tax exemption which can provide a thrust to retail investors.

In conclusion, the upcoming budget can build upon the groundwork that has been in progress for the last few years and take actionable measures towards the next phase of economic growth. Infrastructure, construction, and real estate, by virtue of the ripple effect, will continue to support India’s journey in becoming the third largest economy by 2030.

Housing prices surged ~20% from 2021 to 2023, led by significant growth in demand

India, 29th February 2024: Amidst unwavering homebuyer confidence aided by a favourable interest rate cycle and positive economic outlook, housing demand scaled up and prices across the top eight[1] cities in India surged by about 20% in the last two years (2021-2023). Bengaluru, Delhi NCR, and Kolkata have witnessed the highest rise in average housing prices at about 30% in 2023 compared to 2021 levels. This robust growth is underpinned by a notable uptick in housing demand, particularly in the mid and luxury segments. Amidst significant new launches, developers were able to successfully pass on the rising cost of construction in most cases.

Overall, the unsold inventory saw a notable drop in 2021 and largely continued to remain rangebound until 2023 end, despite significant influx of new supply. During 2022 and 2023 housing markets across the major cities saw an increase in new property launches, in mid and luxury segments. In cities like Bengaluru, Hyderabad, Kolkata, MMR, and Pune new supply surged 2-2.5 times in the last two years, reflecting robust activity and improved developer-market sentiment. With healthy visibility of upcoming projects from established developers and unchanged repo rate, the residential market will see sustained growth in the short to medium term.

Mr. Boman Irani, President of CREDAI National stated, “The year-on-year increase in housing prices is a combination of a number of factors – characterized by strong, robust demand from homebuyers – especially for mid and premium segments, along with the existence of a conducive buying eco-system coupled with healthy macro-economic factors, and the rise in prices of construction materials. The ongoing momentum also encouraged numerous developers that has led to the increase in housing supply across major cities in India. We expect both – housing demand and supply – to thrust forward in 2024 not only in top 8 cities but in Tier II, III regions as well.”

Housing prices continued to reflect strong market momentum and saw a 9% annual rise in 2023. The year outperformed in several areas including uptick in high-end & luxury segments, scaling new peak in sales volume, infrastructure led development, resulting in deeper price discovery across most of the markets. During the year, all the eight major cities witnessed an increase in housing prices, with Bengaluru, highest at 21% YoY, followed by Kolkata at 11%. Looking ahead to 2024, the market is well poised to maintain its current trajectory, with the mid and luxury segments expected to thrive further, offering lucrative opportunities for investors and homebuyers alike,” Badal Yagnik, Chief Executive Officer, Colliers, India   

 

Pan India residential price trends (2021-2023) (in INR/sq ft) –

City Average Price 2021 Average Price 2022 Average Price 2023 Price change (2023 vs 2021) Price change (2023 vs 2022) Price change (Q4 2023 vs Q3 2023)
Ahmedabad 5,721 6,203 6,737 18% 9% 2%
Bengaluru 7,609 8,276 9,976 31% 21% 5%
Chennai 7,182 7,445 7,701 7% 3% 0%
Delhi NCR 6,958 8,394 9,170 32% 9% 6%
Hyderabad 8,821 10,090 11,083 26% 10% 0%
Kolkata 6,081 7,144 7,912 30% 11% 7%
MMR 19,657 19,287 20,047 2% 4% 2%
Pune 7,398 8,379 9,185 24% 10% 2%

Source: Colliers, Liases Foras

All the prices are based on carpet area

Bengaluru saw heightened residential activity during 2021-2023

Bengaluru noted a significant 31% increase in housing prices during 2021- 2023. The city’s rising streak has been largely consistent over the last two years backed by noticeable uptick in demand for residential properties near IT localities like Whitefield, KR Puram, and Sarjapur. The peripheral and outer East and West sub-markets witnessed the highest price hike in the last two years in the range of nearly 50-60%. Additionally, the city saw an average 2X rise in new launches in 2023, compared to 2021, with significant surge in luxury and ultra-luxury property launches in peripheral areas within the North and East sub-markets, as they emerge as prominent IT hubs.

Housing prices in MMR continues to witness a rise; unsold inventory swells

Average housing prices in MMR, the most expensive residential market amongst the top eight cities saw a modest yet steady 2% increase during 2023 compared to 2021 levels. Post-Covid-19, housing prices in MMR dipped and were steady henceforth for about three years. After a hiatus, prices increased during 2023 and inched closer to pre-Covid levels indicating recovery in the market. The sub-market of Panvel saw a significant surge with a 20% rise in the last two years, followed by Western Suburb (beyond Dahisar) and Navi Mumbai. The completion of the key infrastructure projects like Mumbai Trans Harbour Link (MTHL) and key metro lines, have led to a surge in prices in submarkets in and around Navi Mumbai and Western suburbs. With several upcoming major projects, housing prices are further expected to increase in the foreseeable future.

Over the last two years from 2021 to 2023, cities like Delhi NCR, Chennai and Pune, registered a notable decrease in unsold inventory. While Delhi NCR led the pack with significant 19% drop, Chennai and Pune followed closely with about 5-10% drop each, during the two-year period. With an expected steady rise in income levels coupled with positive market sentiment, the demand momentum is likely to remain strong in these markets,” said Vimal Nadar, Senior Director and Head of Research, Colliers India.

“The current state of real estate is the most productive when sales, supply, and prices are growing, and the price rise is not speculative. These factors work in harmony in a balanced and healthy real estate market.”,