Budget 2023-24: Opportunities and Challenges for Real Estate Developers

The recently unveiled Union Budget 2023-24 could be a critical moment for the real estate industry. The Finance Minister has unveiled various measures expected to impact the sector positively.

Outlining measures for growth and progress, the budget was based on the principles of Amrit Kaal, a 25-year plan leading up to India’s 100 years of independence, which was announced last year. While many key measures announced will directly impact the real estate sector, let us examine the primary highlights from Budget 2023 and understand their impact on real estate developers.

Hopes and Disappointments

As Finance Minister Nirmala Sitharaman presented the Union Budget for the 2023-24 fiscal year, the real estate industry held high hopes for several measures to be included and alleviate the stress on the sector. However, many critical suggestions made by developers in recent months were not included, which has not been well received by the building community. For example, the real estate sector had anticipated gaining infrastructure status, but this did not come to fruition.

Additionally, the long-standing demand for a single-window clearance mechanism was ignored by the minister. Furthermore, the industry had also hoped for tax relief, but this was not included in the budget.

Positive Measures Announced

Despite some missing elements, the following measures are expected to enhance the state of real estate developers who have faced significant challenges since the COVID outbreak.

1. Focus on Urban Development in Tier 2 and Tier 3 Cities

In this year’s budget, the Finance Minister emphasized development and urban planning in Tier 2 and 3 cities. With a focus on sustainable and planned growth, the housing sector may receive a boost.

The Urban Infrastructure Development Fund (UIDF) will be administered by the National Housing Bank (NHB). This will assist public agencies in developing infrastructure in Tier 2 and 3 cities. A budget of Rs 10,000 crore has been proposed for this fund.

Additionally, five centers of excellence for urban planning have been proposed, providing the sector with a means to hire skilled professionals. A high-level committee composed of urban planners, economists, and institutions will be established to suggest urban planning policies, implementation strategies, capacity building, and governance.

2. Smart Cities mission

The plan to build “sustainable cities of tomorrow” and the increased allocation of Rs 16,000 crore could greatly improve the quality of life, infrastructure, and sustainability of multiple cities in India. This investment is expected to have a long-term positive impact on the real estate potential of these cities.

3. Capital gains in property deals

The cap on capital gains benefits in property deals at Rs 10 crore is aimed at promoting cleaner real estate investments and reducing large investments from businesses. While this may have a limited impact on high-end residential deals, it is expected to reduce the size of these transactions.

4. GIFT city

The establishment of data embassies with a streamlined approval and registration system is expected to attract countries seeking digital continuity solutions. The single window system is a crucial step towards making GIFT City a leading global financial hub. The IFSCA will likely be granted the power to avoid dual registration, which could impact the real estate sector.

5. Economic Boosters

The Finance Minister has predicted an economic growth rate of 7% for the fiscal year 2023-24. With a planned capital expenditure of Rs 10 lakh crore, an increase of 33 % YoY, there will be increased development throughout the country, drawing in more investors. This will lead to improved cash liquidity in the market, which will, in turn, benefit the real estate sector.

6. Continued Focus on Affordable Housing

In the 2023-24 Union Budget, a commitment of Rs 79,000 crore for PMAY homes has been made, a 66 % increase from the previous year. This funding will help increase the supply of low-cost housing under the Pradhan Mantri Awas Yojana.

7. Assisting Cities through Municipal Bonds

In her speech, the Finance Minister also mentioned property tax reforms to increase incentives for cities to improve their credit ratings for municipal bonds. These bonds have the potential to ease urban infrastructure issues and boost the sentiment of the real estate market in these regions.

8. Focus on Pradhan Mantri Awas Yojana

The Pradhan Mantri Awas Yojana has been a highly anticipated aspect in the real estate sector in the latest budget. The scheme promises to provide citizens with proper housing by 2024, and the 66% increase in its budget allocation to ₹79000 crore is a positive step by the government towards fulfilling its commitment to affordable housing. This is expected to improve market sentiment for both developers and consumers, particularly in smaller cities and towns. The increased demand for raw materials may also lead to a price balance, providing further momentum to the sector.

9. Improving Ease of Doing Business

The 2023-24 Union Budget features several measures to make doing business easier. Approximately 39,000 compliances have been reduced, and proposed amendments to Central Acts will make governance more friendly for businesses.

10. Embracing Digital Transformation in Real Estate Transactions

The previous Union Budget proposed the creation of a Unique Land Parcel Identification Number for digital land records management to increase transparency in real estate transactions. Efforts are also being made to translate land records into regional languages. The “anywhere registration” of deeds and documents through the “One Nation One-Registration Software” can greatly impact India’s real estate sector.

A Positive Roadmap for Growth

Overall, the 2023-24 Union Budget presents a positive outlook for growth, focusing on urban planning and sustainable development. With steps towards digital transformation in the real estate sector and initiatives aimed at boosting the economy, the budget has laid a strong foundation for the industry to thrive.

Budget 2023-24 for Real Estate

The real estate sector had high expectations for the Union Budget 2023, as the past year showed signs of recovery from the pandemic, and the sector hoped for tax reforms to sustain this growth. The government’s allocation of INR 79,000 crores for the Pradhan Mantri Awas Yojana, shows its commitment to boosting investment in affordable housing. The amendments to the real estate sector aim to align government policies with existing provisions and bring clarity to tax authorities and taxpayers. However, the changes to the taxation of business trusts, particularly regarding REITs, were not well received by the sector and could negatively impact their growth in India.