The focus of Budget 2023 was on urbanisation and affordable housing. The allocation for the government’s signature mission, the Pradhan Mantri Awas Yojana (PMAY), has been increased by 66 percent to Rs 79,000 crore. Of this Rs 25,103 crore has been allocated to PMAY Urban. expediting the Housing for All programme.
While this will certainly give a boost to affordable housing, which was flagging due to increased input costs and also because homebuyers were still reeling under the impact of the pandemic, there were no major direct announcements for the real estate sector that could be seen as ‘immediate booster shots’, said real estate experts.
The much-awaited direct tax benefits and changes to the income tax slabs are expected to put more money in the hands of middle-class households, positively impacting spending capacity and savings. This should bode well for the residential segment, especially affordable housing, said real estate experts.
The 66 percent increase in outlay toward PMAY to Rs 79,000 crore will directly impact the development of affordable housing and pare the housing gap that the country faces, they said.
Budget Proposals for the housing sector
The Budget for Pradhan Mantri Awas Yojna (PMAY)- Rural was increased to Rs 54,487 crore, compared to Rs 48,422 crore in the revised estimates for 2022-23.
The allocation for Smart Cities and Amrut mission was at Rs 16,000 crore (FY24 Budget Estimate) as against Rs 14,100 crore in FY23 BE.
Presenting the Union Budget 2023-24, Finance Minister Nirmala Sitharaman said states and cities will be encouraged to take up urban planning.
She also said that the Union government will create an Urban Infrastructure Development Fund on the lines of the Rural Infrastructure Development Fund and it will be managed by the National Housing Bank. The central government will spend Rs 10,000 crore per year for urban infrastructure development funds. All cities and towns will be enabled for 100 percent transition of sewers and septic tanks from manhole to machine hole mode, the minister added
An Urban Infrastructure Development Fund (UIDF) will be set up to ramp up infrastructure in tier-2 and tier-3 cities with an annual allocation of Rs 10,000 crore, Sitharaman announced.
The UIDF, which will be managed by the National Housing Bank, will be established on the lines of the Rural Infrastructure Development Fund (RIDF). The finance minister said the funds will be used by public agencies to create urban infrastructure in tier-2 and tier-3 cities. Sitharaman also announced that urban planning reforms will be encouraged to facilitate transformation into "sustainable cities of tomorrow".
"This means efficient use of land resources, adequate resources for urban infrastructure, transit-oriented development, enhanced availability and affordability of urban land, and opportunities for all," she said.
Sitharaman said that through property tax governance reforms and ring-fencing user charges on urban infrastructure, cities will be incentivised to improve their creditworthiness for municipal bonds.
No booster shots for the real estate sector
Terming it as a fiscally ‘balanced’ budget, NAREDCO vice chairperson Niranjan Hiranandani said that the Budget has addressed the economic growth of India by augmenting the capital expenditure outlays in infrastructure up to Rs 10 lakh crore accounting for nearly 3.3 percent of GDP.
“This will have a multiplier effect on real estate asset classes like the residential, commercial, industrial and logistics sectors,” he said
Shishir Baijal, Chairman and Managing Director, Knight Frank India said that the 66 percent increase in outlay toward PMAY to Rs 79,000 crore will directly impact the development of affordable housing and pare the housing gap that the country faces. The infrastructure boosts will also indirectly benefit the real estate sector. Coupled with the impetus on transit-based infrastructure, there will be a further cause of growth benefiting the real estate sector in mid to long term.
"There were no major direct announcements that could be seen as immediate booster shots," said Anuj Puri, Chairman – ANAROCK Group.
Changes in the income tax slabs, including exemption for income up to Rs 7 lakh under the new tax regime and the new tax slabs, will doubtlessly benefit the middle class.
“However, whether the housing sector will get a collateral boost remains to be seen. The new tax regime offers no benefits that taxpayers can avail of under any Sections, including Section 80C - the previous home loan tax benefits,” he said.
Dhruv Agarwala, Group CEO, Housing.com, PropTiger.com and Makaan.com termed it as an ‘inclusive, growth-oriented and fiscally prudent budget.’ He explained that rationalisation of income tax, especially at the lower end of the income spectrum, would provide extra funds in the hands of middle-class families and alleviate the burden of increasing interest rates. It may also encourage those on the fence to purchase a home.
The Budget is a balanced one for the economy while missing out on key real estate sector demands, said Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.
Commenting on the office space demand, Ramesh Nair, CEO, India and MD, Market Development, Asia at Colliers, said that the announcement to set up 100 labs for developing 5G service applications in India will give a boost to startups, especially in the technology sector. This, along with continued focus on digitization, can rekindle the IT sector, and spur some activity in the commercial office space.”
The 10,000 crore outlay for Urban Infra Development Fund will help create better infrastructure in Tier 2 and Tier 3 cities, thereby increasing residential and commercial demand in these cities, he said.
Amit Goyal, CEO, India Sotheby’s International Realty said that the Budget addressed all concerns that are needed to keep India as the fastest-growing economy in the world. However, the proposed cap on deduction from capital gains on investment in residential property under sections 54 and 54F to Rs 10 crore can be a big deterrent for the housing industry.
“We sincerely appeal to the government to reconsider this limit as the cost of residential property has moved up significantly in tier 1 cities over the last 2-3 years. Moreover, the entrepreneurs contributing to corporate India's growth story are all based in tier 1 cities,” he said.
Gaurav Karnik, EY India Real Estate Leader said that capping of exemption on capital gains to Rs 10 crore on sale of residential houses could act as a dampener on recycling of high-value residential assets. Taxability of return of capital in the case of REITs would force a relook at the distribution models of REITs, he added.
Kamal Singal, MD and CEO, Arvind SmartSpaces, welcomed the green development theme of the Budget. “This move will create awareness regarding the importance of green buildings and environmentally ‘conscious’ construction activities, further enabling India’s ambitious sustainability goals."