Credit: FMTUnion Budget 25-26: A step forward for real estate, but is it enough?
Despite promising reforms, industry leaders call for more targeted incentives
February 12, 2025Real Estate
Wrtiten by Isabella Toledo
Finance Minister Nirmala Sitharaman presented the Union Budget 2025-26 on February 1st, advancing the Viksit Bharat vision of poverty eradication, quality education, affordable healthcare, workforce development, and agricultural growth.
The Budget presentation came amid slower-than-expected real GDP growth of 5.4% in Q2 FY2025, prompting the Reserve Bank of India (RBI) to revise its GDP projection to 6.6% for the fiscal year.
While real estate was not the central focus of the Budget, the sector stands to benefit from significant measures related to housing, urban development, infrastructure expansion, and tax reforms. These policies, though indirect, could unlock new opportunities for investors, developers, and homebuyers alike.
Further supporting homeownership, the government expanded tax exemptions for self-occupied properties, now allowing homeowners to claim two properties as tax-free instead of just one.
Previously, individuals who owned more than one house were taxed on the notional rental income of the second property, even if it was not rented out. The removal of this notional tax burden makes second-home investments more attractive, particularly in vacation destinations and expanding suburban areas, strengthening the residential real estate market.
Additionally, the government has simplified tax rules for rental income and adjusted the TDS (Tax Deducted at Source) threshold, easing compliance burdens for landlords while enhancing liquidity in the rental housing market.
Reflecting on these tax reforms, Badal Yagnik, CEO of Colliers India, stated that “rationalisation of taxes and enhancement of exemption limits can boost disposable income, spurring consumption levels and real estate investments, particularly in residential real estate and alternate financial instruments such as REITs.”
To resolve long-pending housing projects, the government has also expanded the SWAMIH (Special Window for Affordable and Mid-Income Housing) fund, allocating INR 150 billion (USD 1.8 billion) to complete over 100,000 delayed residential units. SWAMIH, launched in 2019, is a government-backed distressed asset fund aimed at financing stuck housing projects to ensure their completion.
By injecting liquidity into the sector, this initiative restores homebuyer confidence and reduces the burden of unfinished projects, particularly in regions such as the National Capital Region (NCR), Pune, and Mumbai, where numerous housing developments have been stalled due to financial distress.
Complementing these efforts, the revamped UDAN (Ude Desh Ka Aam Nagrik) regional connectivity scheme aims to connect 120 new destinations, strengthening air travel access to Tier II and Tier III cities.
Originally launched in 2016, UDAN is a government initiative designed to make air travel affordable and accessible to smaller towns by subsidising airline operations on under-served routes. This expansion is expected to create real estate demand near new airports and key transit corridors, supporting the growth of commercial, residential, and hospitality sectors in emerging cities.
(Adobe Stock)
This classification allows hotels to be treated as infrastructure assets, making it easier for developers to secure lower-cost financing for large-scale hospitality projects and driving tourism-led real estate investments, particularly in heritage, coastal, and eco-tourism destinations.
The Budget also reinforces India's position as a global business hub by introducing a national framework to attract Global Capability Centres (GCCs). With India emerging as a preferred destination for these centres, this framework is expected to increase demand for office spaces in major metros and Tier II cities, further strengthening the commercial real estate sector.
Additionally, the opening of PM Gati Shakti data to private players is set to boost logistics, warehousing, and industrial real estate. By providing real-time data access to the national master platform, private players will be able to optimise supply chains, reduce transportation bottlenecks, and improve industrial park development, unlocking new opportunities in warehousing and manufacturing zones.
Finally, to encourage growth and scalability, the investment and turnover limits for Micro, Small, and Medium Enterprises (MSMEs) classification have been significantly increased, allowing more businesses to qualify for benefits.
The government has also allocated INR 1.5 trillion (USD 18 billion) in fiscal support to enhance financial access, facilitate business expansion, and drive competitiveness, providing MSMEs with greater flexibility to scale operations, invest in technology, and improve efficiency, fostering long-term business sustainability and economic contribution.
"From a real estate perspective, the budget delivers both direct and indirect benefits, acting as a catalyst for growth. However, a notable shortfall was the absence of major announcements for the affordable housing sector, leaving stakeholders disappointed," said Anuj Puri, Chairman of ANAROCK Group and a member of GRI Club India.
Investor sentiment, however, remained strong following the Budget announcement. Real estate stocks surged, with the Nifty Realty Index rising nearly 3% on February 1st, defying broader market weaknesses and reflecting market confidence in the sector’s long-term growth potential.
With metro expansions, road upgrades, and improved connectivity extending beyond Tier-I and Tier-II cities, the sector continues to gain momentum, reflecting positive market sentiment and sustained investment interest.
According to the Survey, India's housing demand is projected to reach 93 million units by 2036, citing research from leading real estate consultancies. The document further emphasises that residential real estate hit an 11-year high in sales volume in the first half of 2024, with total sales across the top eight cities growing by 11% year-on-year.
The role of regulatory measures has been pivotal in transforming the industry, with the Survey specifically highlighting the impact of the Real Estate (Regulation and Development) Act (RERA) and the Goods and Services Tax (GST).
Since its introduction, RERA has strengthened transparency, consumer protection, and financial discipline, reducing fraud and ensuring timely project delivery. As of 6 January 2025, it has been implemented across all states and Union Territories except Nagaland, with 138,000 projects and nearly 96,000 agents registered, and 138,000 complaints resolved, reinforcing accountability in the sector.
Similarly, GST has streamlined taxation across states, replacing a fragmented system with a single, uniform tax structure. The Survey notes that this reform has improved invoicing practices, reduced tax evasion, and enhanced compliance, fostering a more structured real estate market.
The report also highlights the rising influence of Real Estate Investment Trusts (REITs) in India’s commercial market, boosting liquidity and attracting institutional investment. By allowing investors to pool funds into income-generating properties, REITs have opened new investment avenues and strengthened the CRE sector’s growth trajectory.
Looking ahead, industry experts believe real estate will continue to be a key driver of economic progress. GRI Club member Vimal Nadar, Senior Director and Head of Research at Colliers India, reflected on this outlook, stating that “the Economic Survey has outlined the need for continued infrastructure push, policy reforms, and sector-specific business enablers, which should help sustain real estate growth momentum over the next few years.”
***
Gain exclusive insights into the new National GCC Framework and its impact on commercial real estate demand at GRI Offices & Global Capability Centers 2025, taking place on March 12th in Mumbai. CLICK HERE to learn how to participate.
Finance Minister Nirmala Sitharaman presented the Union Budget 2025-26 on February 1st, advancing the Viksit Bharat vision of poverty eradication, quality education, affordable healthcare, workforce development, and agricultural growth.
The Budget presentation came amid slower-than-expected real GDP growth of 5.4% in Q2 FY2025, prompting the Reserve Bank of India (RBI) to revise its GDP projection to 6.6% for the fiscal year.
While real estate was not the central focus of the Budget, the sector stands to benefit from significant measures related to housing, urban development, infrastructure expansion, and tax reforms. These policies, though indirect, could unlock new opportunities for investors, developers, and homebuyers alike.
Tax Reforms and Housing Incentives
One of the most impactful announcements is tax relief for middle-class individuals, exempting those earning up to INR 1.2 million annually from income tax. By increasing disposable income, this move is expected to stimulate homeownership and boost demand for affordable and mid-income housing, particularly in Tier II and Tier III cities, which are emerging as growth hubs due to rapid urbanisation and infrastructure development.Further supporting homeownership, the government expanded tax exemptions for self-occupied properties, now allowing homeowners to claim two properties as tax-free instead of just one.
Previously, individuals who owned more than one house were taxed on the notional rental income of the second property, even if it was not rented out. The removal of this notional tax burden makes second-home investments more attractive, particularly in vacation destinations and expanding suburban areas, strengthening the residential real estate market.
Additionally, the government has simplified tax rules for rental income and adjusted the TDS (Tax Deducted at Source) threshold, easing compliance burdens for landlords while enhancing liquidity in the rental housing market.
Reflecting on these tax reforms, Badal Yagnik, CEO of Colliers India, stated that “rationalisation of taxes and enhancement of exemption limits can boost disposable income, spurring consumption levels and real estate investments, particularly in residential real estate and alternate financial instruments such as REITs.”
To resolve long-pending housing projects, the government has also expanded the SWAMIH (Special Window for Affordable and Mid-Income Housing) fund, allocating INR 150 billion (USD 1.8 billion) to complete over 100,000 delayed residential units. SWAMIH, launched in 2019, is a government-backed distressed asset fund aimed at financing stuck housing projects to ensure their completion.
By injecting liquidity into the sector, this initiative restores homebuyer confidence and reduces the burden of unfinished projects, particularly in regions such as the National Capital Region (NCR), Pune, and Mumbai, where numerous housing developments have been stalled due to financial distress.
Urban Development and Infrastructure Growth
Beyond taxation, urban transformation remains a key priority, with the establishment of the INR 10 trillion (USD 120 billion) Urban Challenge Fund. This initiative aims to revitalise cities, improve land records management, and expand urban infrastructure, making Indian cities more investment-friendly and globally competitive.Complementing these efforts, the revamped UDAN (Ude Desh Ka Aam Nagrik) regional connectivity scheme aims to connect 120 new destinations, strengthening air travel access to Tier II and Tier III cities.
Originally launched in 2016, UDAN is a government initiative designed to make air travel affordable and accessible to smaller towns by subsidising airline operations on under-served routes. This expansion is expected to create real estate demand near new airports and key transit corridors, supporting the growth of commercial, residential, and hospitality sectors in emerging cities.
(Adobe Stock)Boosting Hospitality, Tourism, and Commercial Real Estate
Recognising tourism’s economic potential, the government announced the development of the top 50 tourist sites and included hotels in the Infrastructure Harmonised Master List, granting them access to long-term financing and tax benefits.This classification allows hotels to be treated as infrastructure assets, making it easier for developers to secure lower-cost financing for large-scale hospitality projects and driving tourism-led real estate investments, particularly in heritage, coastal, and eco-tourism destinations.
The Budget also reinforces India's position as a global business hub by introducing a national framework to attract Global Capability Centres (GCCs). With India emerging as a preferred destination for these centres, this framework is expected to increase demand for office spaces in major metros and Tier II cities, further strengthening the commercial real estate sector.
Additionally, the opening of PM Gati Shakti data to private players is set to boost logistics, warehousing, and industrial real estate. By providing real-time data access to the national master platform, private players will be able to optimise supply chains, reduce transportation bottlenecks, and improve industrial park development, unlocking new opportunities in warehousing and manufacturing zones.
Finally, to encourage growth and scalability, the investment and turnover limits for Micro, Small, and Medium Enterprises (MSMEs) classification have been significantly increased, allowing more businesses to qualify for benefits.
The government has also allocated INR 1.5 trillion (USD 18 billion) in fiscal support to enhance financial access, facilitate business expansion, and drive competitiveness, providing MSMEs with greater flexibility to scale operations, invest in technology, and improve efficiency, fostering long-term business sustainability and economic contribution.
Real Estate Market Response
Despite the positive measures, real estate industry leaders noted missed opportunities that could have provided further momentum to the sector. Experts argue that targeted incentives - such as enhanced tax deductions on home loans, lower GST on construction materials, industry status for real estate, and a national rental housing policy - could have further accelerated sectoral growth."From a real estate perspective, the budget delivers both direct and indirect benefits, acting as a catalyst for growth. However, a notable shortfall was the absence of major announcements for the affordable housing sector, leaving stakeholders disappointed," said Anuj Puri, Chairman of ANAROCK Group and a member of GRI Club India.
Investor sentiment, however, remained strong following the Budget announcement. Real estate stocks surged, with the Nifty Realty Index rising nearly 3% on February 1st, defying broader market weaknesses and reflecting market confidence in the sector’s long-term growth potential.
Economic Survey
The Economic Survey 2024-25, released ahead of the Union Budget, highlighted a strong performance in India's real estate sector, largely driven by robust housing demand, economic stability, and major infrastructure developments.With metro expansions, road upgrades, and improved connectivity extending beyond Tier-I and Tier-II cities, the sector continues to gain momentum, reflecting positive market sentiment and sustained investment interest.
According to the Survey, India's housing demand is projected to reach 93 million units by 2036, citing research from leading real estate consultancies. The document further emphasises that residential real estate hit an 11-year high in sales volume in the first half of 2024, with total sales across the top eight cities growing by 11% year-on-year.
The role of regulatory measures has been pivotal in transforming the industry, with the Survey specifically highlighting the impact of the Real Estate (Regulation and Development) Act (RERA) and the Goods and Services Tax (GST).
Since its introduction, RERA has strengthened transparency, consumer protection, and financial discipline, reducing fraud and ensuring timely project delivery. As of 6 January 2025, it has been implemented across all states and Union Territories except Nagaland, with 138,000 projects and nearly 96,000 agents registered, and 138,000 complaints resolved, reinforcing accountability in the sector.
Similarly, GST has streamlined taxation across states, replacing a fragmented system with a single, uniform tax structure. The Survey notes that this reform has improved invoicing practices, reduced tax evasion, and enhanced compliance, fostering a more structured real estate market.
The report also highlights the rising influence of Real Estate Investment Trusts (REITs) in India’s commercial market, boosting liquidity and attracting institutional investment. By allowing investors to pool funds into income-generating properties, REITs have opened new investment avenues and strengthened the CRE sector’s growth trajectory.
Looking ahead, industry experts believe real estate will continue to be a key driver of economic progress. GRI Club member Vimal Nadar, Senior Director and Head of Research at Colliers India, reflected on this outlook, stating that “the Economic Survey has outlined the need for continued infrastructure push, policy reforms, and sector-specific business enablers, which should help sustain real estate growth momentum over the next few years.”
***
Gain exclusive insights into the new National GCC Framework and its impact on commercial real estate demand at GRI Offices & Global Capability Centers 2025, taking place on March 12th in Mumbai. CLICK HERE to learn how to participate.
