Analysing the Impact of the General Budget 2023 on Residential Real Estate
Jun 26, 2023Homes and People

Analysing the Impact of the General Budget 2023 on Residential Real Estate

by Godrej Properties Limited

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Budget 2023 Impact On  Real Estate

Real Estate Union Budget 2023, presented annually by the government in India, can significantly impact the residential real estate sector. The budget for 2023 sets the financial plan for the country and introduces policies and incentives that can influence the dynamics of the real estate market. 

Budget 2023 Impact on Real Estate

Real Estate Union Budget 2023, presented annually by the Government in India, can significantly impact the residential real estate sector. The budget for 2023 sets the financial plan for the country and introduces policies and incentives that can influence the dynamics of the real estate market. 

Benefits for Real Estate

1. Boost for Affordable Housing: The Union Budget 2023 injects vitality into the affordable housing market by substantially increasing the outlay for Pradhan Mantri Awas Yojana (PMAY) by 66%, surpassing Rs 79,000 crore. This surge in investment is poised to invigorate the affordable housing segment.

2. Infrastructure Development Drive: A significant elevation of the Capital Expenditure Outlay on Infrastructure Development by 33% to Rs. 10 Lakh Crore, equivalent to 3.3% of the GDP, provides a substantial impetus to the real estate sector. This surge in infrastructure spending is expected to propel property values and foster overall development.

3. Tax Exemptions and Higher Disposable Incomes: The budget 2023 from the income tax point of view proposes an extension of tax exemptions for income generated by entities involved in housing or urban development. Additionally, the increase in tax exemption from Rs. 5 lakhs to Rs. 7 lakhs augurs well for prospective homebuyers, fostering higher disposable incomes that can be directed towards property investments.

4. Collaborative Urban Infrastructure Development: The government's focus on enhancing urban infrastructure and incentivizing private investment through collaborative efforts between central and state governments for project approvals and land use permits is a strategic move. This collaborative approach is poised to amplify real estate demand over the long term.

Drawbacks for Real Estate

1. Lack of Direct Incentives: While the budget exhibits a strategic focus on sustainable growth, it falls short of providing immediate impetus to the real estate sector. The absence of direct incentives for the real estate industry and homebuyers is a notable drawback.

2. Unaddressed Industry Status: The long-standing demand of the real estate sector for 'industry' status, a crucial factor for attracting equity investment and lower interest rate loans, remains unaddressed. This omission hinders the sector's growth potential.

3. Overlooking Rising Housing Prices: The budget overlooks the escalating housing prices due to inflation. Additionally, anticipated measures like Goods and Services Tax (GST) reduction on raw construction materials did not materialize, impacting the sector's affordability.

4. Absence of Expected Initiatives: The absence of expected measures such as single-window clearances and property tax reliefs for homebuyers in the new tax regime disappoints the sector's expectations, limiting the potential for housing affordability and demand stimulation.

What Real Estate Industry Gained from Budget 2023

1. Reinforcement of Affordable Housing: The real estate industry gains a significant boost from Budget 2023 through key initiatives. The substantial increase in the PMAY outlay promises to fortify the affordable housing segment, addressing the growing demand in this sector.

2. Commercial Real Estate Impetus: Commercial real estate benefits from the tax holiday extension for start-ups and substantial investments in urban infrastructure, particularly in Tier 2 and 3 cities. This focus stimulates demand for sophisticated office spaces beyond Tier I cities, fostering the development of new commercial hubs.

3. Indirect Benefits for Economic Development: The allocation of funds for agriculture, rural development, and healthcare aligns with the overall economic development agenda, indirectly benefitting the real estate sector. These initiatives contribute to a holistic and sustainable growth environment.

4. Focus on Capex and Job Creation: The budget's emphasis on Capex and Energy Transition, along with initiatives for job creation and digital infrastructure, augurs well for long-term economic growth. This broader economic development positively impacts the real estate landscape.

Some Key Factors and their Potential Impact

1. Affordable Housing

The budget prioritises affordable housing through fund allocation, developer tax incentives, and more accessible financing options, stimulating construction and sales of affordable units and addressing housing needs for a more extensive section of society.

2. Infrastructure Development

Budgetary allocations for infrastructure development, such as roads, railways, and metro networks, can impact real estate prices. Improved connectivity and accessibility to an area can make it more desirable for residential purposes, leading to increased demand and potentially higher property values.

3. Foreign Direct Investment (FDI)

The budget may introduce policies to attract foreign investments in the real estate sector. Relaxation of FDI norms, easier repatriation of funds, or tax incentives for foreign investors can spur international interest in Indian residential real estate. This influx of investment can drive the growth of the sector and result in increased housing supply.

4. Goods and Services Tax (GST)

The budget may propose changes in the GST tax rates applicable to real estate transactions. Modifications in tax rates for under-construction properties or affordable housing can impact the overall cost for homebuyers. Any reduction in tax burden can make real estate more affordable and encourage prospective buyers.

5. Real Estate Regulatory Authority (RERA)

The budget can also address the implementation and effectiveness of RERA, which is a regulatory body governing the real estate sector. Adequate funding and measures to strengthen RERA’s enforcement capabilities can enhance consumer protection, boost investor confidence, and improve transparency in the residential real estate market.

The Final Word

It is important to note that the actual impact of these policies and incentives on residential real estate will depend on their implementation, market conditions, and various other factors. A complex interplay of economic factors, investor sentiment, and local dynamics influences real estate markets. Therefore, while the Union Budget can set the tone for the sector, its complete impact will unfold over time.


Frequently Asked Questions

1. How does the Union Budget attract foreign investments in Real Estate?

Ans: The Union Budget can introduce policies to attract foreign investments in real estate. It may relax FDI norms, provide easier repatriation of funds, or offer tax incentives for foreign investors. These measures can encourage international interest in Indian residential real estate, leading to increased investment and sector growth.

2. What tax benefits can be introduced or modified in the Union Budget?

Ans: The Union Budget can introduce or modify tax benefits related to residential real estate, such as changes in income tax rates, deductions on home loan interest, or capital gains tax on real estate. These measures can impact the affordability of housing and incentivise homebuyers and investors.

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