The Union Budget is always keenly awaited in India, setting the economic tone for the coming year. Therefore, for the real estate sector, the budget holds immense significance, as it can shape the industry’s trajectory. So, with the Union Budget 2024 unveiled on 23 July 2024 in the Lok Sabha, the real estate market is buzzing with anticipation. This blog delves deep into the key highlights of the budget and their potential impact on the sector. Read along to explore how these announcements will reshape the real estate landscape.
Union Budget 2024: A Game-Changer for the Real Estate Market?
The recently unveiled Union Budget 2024 has come up with a series of measures to propel the real estate sector to new heights. It shows a strong emphasis on affordable housing, urban development, and tax reforms. Also, the government has laid out a roadmap for transforming the industry.
Key Highlights for the Real Estate Sector
The Budget has introduced several significant changes that will have a profound impact on the real estate market:
Affordable Housing and Urban Development
- PM Awas Yojana (PMAY) Expansion: Firstly, the government has committed a massive investment of Rs 10 lakh crore to build an additional three crore houses under PMAY. Thus providing a significant boost to the construction sector.
- Urban Housing Investment: Also, a substantial allocation of Rs 2.2 lakh crore has been earmarked for making urban housing more affordable over the next five years.
- Rental Housing: Moreover, the government is promoting public-private partnerships to develop dormitory-type accommodation for industrial workers.
- Transit-Oriented Development: Also, new plans for 14 major cities will be formulated to enhance urban mobility and infrastructure.
- Revised Capital Gains Tax Framework: The holding period for REIT units has been reduced, and the LTCG tax rate on listed REITs has increased to 12.5%.
- Rationalisation of Capital Gains on Transfer of Immovable Property: The Budget has reduced the LTCG tax rate on property to 12.5%, but the indexation benefit has been removed.
- TDS on Rental Income: The budget has reduced TDS on rent payments by individuals and HUFs to 2% for monthly payments exceeding Rs 50,000.
- TDS on Transfer of Immovable Property: The Budget has clarified TDS on property transfers exceeding Rs 50 lakh.
Other Key Announcements
Impact Analysis: Union Budget 2024 on the Real Estate Market
The Union Budget 2024 has introduced a series of measures aimed at revitalising the real estate sector. Let’s analyse the potential impact of these key initiatives on different segments of the market:
Impact on Residential Real Estate
- Affordable Housing: With the significant allocation for PMAY, it is expected to boost affordable housing construction, increasing housing supply and potentially driving down prices in this segment. Also, this could stimulate demand from first-time homebuyers.
- Middle-Income Housing: With a primary focus on affordable housing, the overall economic growth spurred by the budget can indirectly benefit middle-income housing. Improved consumer sentiment and increased disposable income may lead to higher demand in this segment.
- Luxury Housing: Also, the luxury segment might witness a mixed impact. While the overall economic optimism can drive demand for high-end properties, potential changes in tax slabs and investment avenues could influence purchasing decisions.
Impact on Commercial Real Estate
- Office Space: The budget’s emphasis on urban development and infrastructure can lead to increased demand for office spaces, especially in tier-1 and tier-2 cities.
- Retail: The budget’s focus on boosting consumer spending can positively impact the retail sector. Also, increased disposable income can lead to higher foot traffic and retail sales, benefiting commercial properties in prime locations.
- Industrial and Logistics: Real estate may get a boost as the government’s push for industrial growth and infrastructure development is expected to drive demand for industrial and logistics spaces. Also, this can lead to increased investment and job creation in these sectors.
Impact on Real Estate Investment Trusts (REITs)
- Short-Term: Also, the reduced holding period for listed REITs and the higher LTCG tax rate might lead to short-term volatility in the REIT market. However, the long-term outlook remains positive due to the growing institutional investor interest in REITs.
- Long-Term: Also, the overall growth of the real estate sector and the government’s focus on infrastructure development can positively impact REIT performance in the long run. Therefore, REITs offering exposure to residential and commercial properties are likely to benefit.
What Real Estate Gained from Union Budget 2024
The Union Budget 2024 brought several positive developments for the real estate sector. Here’s a breakdown of the key gains:
Boost to Affordable Housing
- Massive Investment: The substantial allocation of Rs 10 lakh crore under PMAY Urban 2.0 is a game-changer for affordable housing.
- Increased Supply: Also, this massive investment will lead to a significant increase in affordable housing supply, addressing the acute shortage in the market.
- Stimulated Demand: Moreover, the availability of more affordable homes is expected to boost demand, especially among first-time homebuyers.
Infrastructure Push
- Urban Development: Also, the focus on urban development, including transit-oriented development, will create opportunities for real estate developers to build mixed-use projects.
- Industrial Growth: The strong emphasis on industrial parks and infrastructure development will drive demand for industrial and logistics real estate.
Tax Benefits
- Reduced LTCG Tax: Moreover, the reduction in the long-term capital gains tax on property to 12.5% will make real estate investments more attractive.
- REIT Benefits: Also, the holding period for REITs has been reduced, and the overall move to align REIT taxation with equity investments is a positive step.
Increased Investor Confidence
- Government Support: Significantly, the government’s clear commitment to the real estate sector through various initiatives has boosted investor confidence.
- Economic Growth: Also, the overall economic growth projections can lead to increased investor interest in the real estate market.
Therefore, the Union Budget 2024 has laid the foundation for a robust real estate sector. So, by addressing key challenges such as affordability and infrastructure, the government has created a conducive environment for growth and development.
Union Budget 2024: A Breakdown for Homeowners and Property Investors
The government’s Focus on Housing and Urban Development includes plans to make housing more affordable and improve cities across the country:
- Building more affordable homes: The Indian government is investing a large amount of money to build more homes for people who can’t afford expensive ones.
- Better cities: New plans are in place to make cities better places to live with improved transportation, infrastructure, and public spaces.
So, these changes are expected to benefit people who are looking to buy their first home or those who want to live in better neighbourhoods.
The Tax Changes: Understanding the Impact
While the government is taking steps to improve housing, there are also changes in how taxes work for property owners.
- Lower tax on property sales: The Budget proposed to reduce the tax you pay when you sell a property. So, this means you will keep more of the money when you sell your house or land.
- Removal of indexation: Earlier “indexation” helped people pay less tax on property sales. Now, the government has removed this.
What this means for you:
- Therefore, if you bought your property a long time ago: Because of inflation (the cost of things going up over time), the value of your money has decreased. However, Indexation helped adjust for this. Without it, you might end up paying more tax when you sell your property.
Also, if you bought your property recently, the lower tax rate on property sales might benefit you, especially if you sell it quickly.
Understanding Indexation
Indexation in simple words, is a way to adjust the value of something over time to account for inflation. Also, Indexation helps protect the value of your money by increasing its amount in line with inflation.
How Does Indexation Work in Real Estate?
When it comes to real estate, indexation was used to adjust the purchase price of a property for inflation when calculating capital gains tax. Therefore, this meant that the profit you made on selling the property was adjusted to reflect the increased cost of living over the years you owned it.
For instance, if you bought a house for Rs. 10 lakhs in the year 2000 and sold it for Rs. 30 lakhs in 2024, without indexation, your profit would be Rs. 20 lakhs. However, due to inflation, the value of Rs. 10 lakhs in 2000 is not the same as Rs. 10 lakhs in 2024. Therefore, Indexation would adjust the purchase price to account for inflation, reducing the taxable profit.
Why Was Indexation Removed?
The government of India has decided to remove indexation to simplify the tax calculation process. Also, they believe that the lower capital gains tax rate of 12.5% offsets the loss of indexation benefits for many taxpayers.
However, it’s important to note that this change primarily affects properties purchased after April 1, 2001. Properties bought before this date still qualify for indexation benefits.
Conclusion
The Union Budget 2024 has painted a promising picture for the real estate sector. With a strong emphasis on affordable housing, urban development, and infrastructure, the government has laid the groundwork for sustained growth. While challenges such as removing indexation benefits exist, the overall positive sentiment is undeniable.
To fully capitalize on these opportunities, effective implementation of the budget’s provisions is paramount. To thrive in this new era, the real estate industry must adapt to evolving market dynamics and consumer preferences.
Ridhi Sidhi Group, standing tall as a top real estate company in Guwahati and renowned as one of the best developers and builders in the region, is uniquely positioned to harness the potential of this budget. Also, with a steadfast focus on crafting ideal homes and shaping dreams, we are committed to delivering exceptional real estate solutions that cater to the needs of our customers and contribute to the overall growth of the sector. Contact us today to explore how we can partner with you to achieve your real estate aspirations.
