Union Budget 2024 Expectations: Real Estate Sector Seeks Reduction In Tax, Low-Cost Stamp Duty

Budget 2024 Expectations: High taxes, reaching up to 28 per cent on construction materials and 18 per cent on the actual construction work, strain the market, causing property prices to fluctuate

By Priyatham Kumar

India's real estate market has seen big changes lately. The fast growth of service industries such as telecom, banking, and IT, along with the increased demand from foreign companies is creating a higher need for commercial real estate, especially in Tier 2 and Tier 3 cities. Notably, the hospitality and retail industries are also growing significantly, adding crucial infrastructure to meet the nation's needs.

In the fiscal year 2023, India's housing market did really well. Home sales reached Rs 3.47 lakh crore ($42 billion), growing by a strong 48 per cent compared to the previous year. Total houses sold were 379,095 units, an increase by as much as 36 percent. In addition, between January and March 2023, the retail space lease increased by 130 per cent every month, reaching 1.5 million square feet.

At present, the upcoming Interim Budget for the 2024-25 fiscal year is set to be revealed before the general elections, anticipated to take place between April and May 2024. This budget will be in effect for a brief period until the new government assumes office. However, it can mark a significant move for the real estate sector, introducing reforms to address its expanding needs.

As the Indian real estate sector grows, it faces some challenges that hinder its progress and need attention. High taxes, reaching up to 28 per cent on construction materials and 18 per cent on the actual construction work, strain the market, causing property prices to fluctuate. Each year, only three houses are constructed for every 1,000 people, while the demand is for five houses per 1,000 individuals. This creates a shortage of approximately 10 million homes in cities. To accommodate the growing urban population, an additional 25 million affordable housing units must be built by 2030.

Expectations from Budget for the Real Estate Sector:

Reduction in Tax
To boost the urban housing, commercial, and retail sectors, it's crucial to cut taxes on construction materials and activities from 28 per cent to 18 per cent. This reduction will lower overall costs, enabling developers to undertake more projects at a reduced expense. As a result, property prices may drop for homes and businesses. The reduced prices could draw in more buyers, encouraging investments in cities beyond major ones. This, in turn, would boost the real estate industry and contribute to the overall nation's development.

Low-cost Stamp Duty

The government has recommended all the states to consider lowering the stamp duty, currently on an average at 5-7 per cent of a property's value, along with registration charges at 1 per cent of the property market value. To encourage more investment in property purchases in India, it is crucial to further decrease the stamp duty. This move will empower property buyers to acquire larger properties, promoting growth in the real estate market.

Support to Proptech

Prop Tech start-ups account for about 6 per cent of all recognised start-ups in India. IBEF estimates that by 2030, real estate might be valued at over $1 trillion and more than 13 per cent of India's GDP in 2025. Currently, the country's whole GDP is made up of between 6 and 7 per cent of real estate. The Proptech sector has the potential to attract promising FDIs, crowdfunding, institutional investments and more, making it a crucial aspect to watch, especially in the Indian market. Therefore, support from the government, with a specialised Budget policy for Prop Tech, can foster the real estate sector, boost activity, generate additional revenue and contribute to economic growth.

Forecasts suggest that by 2047, the Indian real estate industry will have grown to a value of $ 5.8 trillion, accounting for 15.5 per cent of the country's GDP. The sector is expected to grow significantly, with a projected 19.5 per cent CAGR from 2017 to 2028 and a market value of $ 1 trillion by 2030. To ensure India's economic progress, new reforms that boost investments and overall national growth through cooperation between the public and private sectors are required.

The writer is the founder of Homes247

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