Budget 2025: Real estate segment hopes for focused policies, tax incentives to boost demand

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Real estate stocks have delivered impressive absolute returns, with several leading players achieving a compound annual growth rate (CAGR) of 25–35% over the past two years. Companies such as DLF, Godrej Properties, Prestige Estates, and Oberoi Realty have emerged as strong performers, driven by healthy demand in both residential and commercial segments. According to analysts, valuations in the sector are currently fair to moderately expensive, depending on the company.

The sector's growth has been supported by housing initiatives and increased infrastructure spending. However, experts point to the need for more focused policies to promote affordable housing and urban development. With the Union Budget scheduled to be presented on February 1, the industry is optimistic about several potential benefits. Analysts anticipate enhanced tax incentives for homebuyers and developers, such as higher deductions on home loan interest and greater support for affordable housing projects. Developers are also advocating for infrastructure status, which could simplify access to institutional credit and reduce borrowing costs.

Between FY 2015–16 and FY 2023–24, the Smart Cities Mission (SCM) received a total budgetary allocation of Rs45,915 crore, accounting for 96% of the projected central share of Rs48,000 crore. As of July 2024, 93% of these funds had been utilised, with 7,188 projects worth Rs 1.44 lakh crore were completed and 830 projects valued at Rs 19,926 crore nearing completion.

Additionally, the Pradhan Mantri Awas Yojana – Urban (PMAY-U) program was allocated Rs 80,671 crore for FY 2024–25. By June 2021, over 83 lakh houses were initiated for construction, with approximately 50 lakh houses completed and handed over. This initiative has generated significant economic benefits, including the creation of approximately 246 lakh jobs and 689 crore person-days of employment.

Despite these advancements, developers face challenges such as rising raw material and land costs and outdated definitions of affordable housing in metropolitan areas. Analysts emphasize the importance of revising size and price criteria to align with city-specific dynamics. Targeted measures, including tax benefits for buyers, subsidies for developers, and granting industry status, could rejuvenate the segment.

Analysts are optimistic that the budget will simplify regulations and introduce incentives to attract foreign investment in commercial real estate. They recommend increasing the current home loan interest deduction limit of Rs2 lakh to stimulate housing demand further. The real estate sector remains a promising investment avenue, with Oberoi Realty, PNB Housing Finance, and AAVAS Financiers identified as top picks.