The Union Budget 2025-26 comes at a significant time for the Indian real estate sector, a key contributor to the nation’s GDP (Gross domestic product) and employment generation. In recent years, the sector has demonstrated resilience amid global economic uncertainties, with institutional investments touching $6.5 billion in 2024, a 22% year-on-year increase, according to ANAROCK Property Consultants.
However, challenges persist, such as escalating construction costs, urban housing shortages, and limited access to affordable financing.
To reach the projected $1 trillion real estate market by 2030, as noted by Colliers India, the upcoming Budget must address critical issues, including affordable housing, rental policy reforms, and sustainability.
The sector also anticipates bold measures to enhance liquidity, rationalise taxes, and incentivise green building practices. With real estate directly influencing 53% of India’s GDP (CREDAI), the government’s approach in the Budget will be instrumental in defining the sector’s trajectory.
1. Addressing mid-income housing gaps
This segment has long been overlooked, often caught between the extensive subsidies for affordable housing and the market-driven dynamics of luxury real estate. However, mid-income housing constitutes a significant portion of urban demand, especially as middle-class incomes grow.
According to a report by the National Housing Bank (NHB), urban housing prices increased by an average of 38% between 2018 and 2024, making homeownership challenging for this demographic.
To bridge this gap, the government could revise tax incentives and increase housing loan deduction limits. For instance, the current cap of ₹2 lakh on home loan interest under Section 24(b) could be raised to ₹5 lakh, easing the financial burden on mid-income buyers.
Additionally, extending Credit Linked Subsidy Scheme (CLSS) benefits to homes priced up to ₹75 lakh in metros and ₹50 lakh in tier-II cities could unlock significant demand. The construction sector’s contribution to employment is immense, with over eight crore individuals directly or indirectly employed, as noted by CREDAI.
Addressing mid-income housing gaps could stimulate consumption across allied industries, involving construction materials and interiors. If Budget 2025 allocates targeted incentives to this segment, it could catalyse a multiplier effect, driving inclusive growth and urbanisation.
2. Unlocking land for urban housing
One of the critical challenges facing Indian real estate is land scarcity in urban areas. The Ministry of Housing and Urban Affairs (MoHUA) reports that land costs account for up to 70% of project expenses in metros like Mumbai and Delhi. To address this, public land banks, like those overseen by Indian Railways, Port Trusts, and other government agencies, could be leveraged to provide land for affordable and mid-income housing.
A public-private partnership (PPP) model could enable cost-effective land allocation while maintaining transparency. Expanding such initiatives to metropolitan land banks could further bolster housing supply. Additionally, incentivising developers through reduced stamp duties for land acquired via public banks and offering GST input credits for housing projects could encourage participation.
Real estate’s contribution to urbanisation must align with sustainable development goals, with urban areas expected to accommodate over 50% of India’s population by 2047. Unlocking public land for strategic housing development is critical to meeting this demand, while controlling spiralling urban land prices.
3. Strengthening industrial and logistics hubs
India’s industrial and logistics sectors have experienced significant expansion, driven by the expansion of e-commerce and manufacturing under the Production Linked Incentive (PLI) scheme. In 2024, the warehousing sector alone absorbed over 35 million sq.ft. across major cities, a 20% increase from the previous year.
Real estate is vital to this growth, providing the infrastructure backbone for industrial hubs and logistics parks. The Union Budget this time could further support this by offering viability gap funding for logistics hubs and reducing GST on construction materials used in industrial facilities.
Policies aimed at incentivising private investments in logistics infrastructure could accelerate the creation of multi-modal logistics parks and regional warehouses, especially in tier-II and tier-III cities. Moreover, integrating real estate into India’s manufacturing ambitions, particularly in auto and electronics, can yield substantial gains.
For instance, dedicated real estate zones for Electric Vehicle (EV) manufacturing and battery storage could support India’s goal of reaching net-zero emissions by 2070. By aligning with the National Logistics Policy, real estate has the potential to position India as a global manufacturing powerhouse, driving economic development and generating employment opportunities.
4. Building the future with sustainable practices
Sustainability in real estate is no longer optional; it is a necessity. According to a report by the World Green Building Council, the built environment contributes nearly 39% of global Co2 emissions. In India, where urban construction is projected to triple by 2047, green building adoption is critical to achieving climate goals.
The Budget could provide tax incentives for developers using recycled materials, energy-efficient designs, and water-saving technologies. A GST concession on green-certified buildings could encourage developers to adopt sustainable practices, while government-backed green bonds could finance large-scale eco-friendly projects.
India’s adoption of green buildings is still nascent, with only 5% of new constructions certified as sustainable (LEED 2024). By introducing policies to accelerate this transition, the government can position real estate as a leader in climate action. Sustainable construction not only reduces environmental impact but also enhances property value, making it an effective business case for developers and investors alike.
5. Catalysing digital transformation in property transactions
As India moves towards becoming a $10 trillion economy by 2035, the integration of technology into real estate transactions can significantly enhance transparency and efficiency. Digital property registrations, blockchain-based title management, and AI-driven compliance platforms are no longer futuristic concepts; they are immediate necessities.
The real estate sector contributes significantly to economic activity, with transactions worth ₹5 lakh crore annually, as per the National Real Estate Development Council (NAREDCO). Yet, manual processes and opaque systems often deter investors. Budget 2025-26 could earmark funds to digitise land records and streamline property registration across states.
Additionally, offering tax deductions to companies investing in proptech innovations could drive digital transformation. With India’s proptech market projected to grow to $1 billion by 2025, policy support in this domain could modernise the sector, improve ease of doing business, and attract both domestic and foreign institutional investments.
6. Expanding the rental economy
Rental housing has long been a neglected area in Indian real estate, despite its potential to address urban housing shortages. As per ANAROCK, only 4% of India’s urban population resides in organised rental housing. The Budget must prioritise this segment to ensure balanced urban growth.
Policy reforms could include tax incentives for developers building rental-specific units and a revision of tenancy laws to protect both landlords and tenants. Introducing rental housing vouchers for low-income families could make urban living more affordable, while incentivising developers to focus on this market.
Moreover, rationalising the taxation of rental income and removing notional income tax on unsold inventory held as stock-in-trade could unlock significant investment. With urban housing demand expected to triple by 2047, a robust rental housing policy is essential.
7. Empowering tier-II and tier-III cities as economic growth hubs
India’s economic future hinges on the equitable development of its smaller cities, which hold untapped potential for driving growth. Tier-II and tier-III cities contributed approximately 25% to real estate demand in 2024 (ANAROCK), and this share is projected to rise significantly. However, inadequate infrastructure and limited economic opportunities have hindered these cities from realising their full potential.
The Budget could prioritise targeted infrastructure investments, such as expanding regional airport networks, enhancing public transport, and creating smart city frameworks. Policies that incentivise private sector participation in developing growth corridors could unlock these cities’ potential, particularly by focusing on technology-led infrastructure and logistics capabilities.
Moreover, real estate development in these cities could benefit from tax rebates for projects in underserved areas, coupled with streamlined approval processes to reduce delays. With tier-II and tier-III cities poised to absorb significant population migration by 2047, empowering these regions will not only ease the burden on metros but also create self-sustaining economic hubs, fostering balanced growth and greater regional equity.
The writer is Director, Eros Group.
Published – January 24, 2025 04:13 pm IST
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