How would the 2023 Union Budget benefit Real Estate?

How would the 2023 Union Budget benefit Real Estate?

The Indian real estate market has seen a steady recovery, boosting demand for both residential and commercial properties, aided by the gradual reopening of offices and educational institutions. The majority of home buyers in 2022 were searching for affordable and mid-range residences. According to Magicbricks' data, 80% of prospective buyers searched for apartments, compared to 67% in 2021.

Reports by Magicbricks in 2022 showed that the real estate industry was growing, driven by residential and rental demand and supply. Despite a 13.9% increase in property rates across the country, residential demand increased by 19%. Bengaluru, Pune, and Mumbai were the most sought-after cities for real estate investment.

The highest increases in residential demand were seen in major cities such as Mumbai (52.1%), Noida (35.8%), Gurugram (34.5%), and Bengaluru (33%). Residential supply also increased YoY in cities including Mumbai (13.4%), Bengaluru (8.4%), Chennai (2.9%), and Delhi (2.1%).

The rental market also showed positive trends, with an average increase in rents of 5.2% QoQ between Oct-Dec 2022, while rental demand decreased 3.9% pan-India. However, cities like Greater Noida (37%), Noida (12.7%), and Gurugram (8.5%) showed growth in rental demand.

The COVID-19 pandemic has been a turning point for the real estate market, particularly for tier 2 cities that have become growth engines. Cities like Nagpur (49%), Coimbatore (27%), and Bhubaneswar (12%) had the highest YoY growth in residential demand and Nagpur (84%), Coimbatore (30%), and Indore (6%) had the highest YoY growth in rental demand.

Government initiatives such as AMRUT and the Smart Cities Mission have transformed these cities into new economic hubs and with an increase in economic activity and employment opportunities, tier 2 cities are expected to become prime residential markets. The presence of Indian MNCs such as Infosys and TCS in 80% of these cities and foreign MNCs such as IBM in 60% of these cities with expansion plans further fuels the opportunity.

While the outlook for 2023 is positive, rising inflation and interest rates could create challenges in the coming quarters. The 2023 budget could sustain the momentum by making real estate investments more affordable and lucrative through tax provisions. Most respondents in Deloitte's pre-budget survey are hoping for tax reforms that would improve their purchasing power and fuel customer demand.

By offering tax exemptions and changes in deduction limits for home loans, the budget could increase cash flow for customers and encourage real estate investments. An increase in tax rebates for home loans could also offset the effects of rising interest rates by providing financial relief to customers.

The budget could also provide support to developers by expediting project completion and delivery through single-window clearance and granting infrastructure status to real estate, encouraging more investment in the form of FDIs. Developers and builders could benefit from alternative sources of funding and supportive policies that reduce construction costs.

Given the 14% increase in property rates across cities due to rising construction costs, there is an opportunity to benefit both homebuyers and developers by increasing the price band for affordable housing. Research shows that 2 and 3 BHK units are the most sought-after configurations in major Indian cities, and by revising the definition of affordable housing and taking into account different inflation levels in cities, the budget could be more inclusive.

In conclusion, the real estate industry is considered a bellwether of the economy and we can expect a positive growth for this Financial Year

Source: The Times of India