Real estate companies anticipate reforms in Budget 2025: Key themes to watch out for

As India eagerly awaits the Union Budget 2025, the real estate sector is abuzz with anticipation, much like how Dubai’s explosive growth transformed its economy in the last two decades. From barren deserts to a global city, Dubai used a real estate boom to diversify its economy, creating jobs, boosting tourism, and positioning itself as a financial hub. Investors, stakeholders, and developers in India are hoping that similar reforms can tap the full potential of the country’s real estate sector. With the right moves in the Budget, India too could experience a transformation. A similar boom could fuel economic growth, create millions of jobs, and elevate India as a powerhouse in the global real estate market.

The significance of this sector cannot be overstated. Real estate currently contributes 7.3% to India’s GDP and remains the second-largest employment generator after agriculture. Projections suggest the market could grow to $5.8 trillion by 2047, pointing to substantial opportunities ahead. However, to achieve this vision, the government must carefully navigate the challenges the sector faces today.

At the heart of these challenges lies a split in demand between two distinct segments—luxury homes and affordable housing. Luxury buyers are seeking integrated, self-contained developments. As per the ANAROCK-FICCI Homebuyer Sentiment Survey, luxury housing represents 45% of the market with properties priced over ₹90 lakh. On the other hand, affordable housing continues to face a significant shortage, expected to rise from 10.1 million units in 2024 to 31.2 million by 2030. This glaring gap in supply, coupled with India’s ambitious goal of becoming a $10 trillion economy by 2032, underscores the urgent need for balanced and targeted policy reforms. 

Key Real Estate Themes in Budget 2025

With this backdrop, Budget 2025 holds the potential to shape the course of the sector in key ways. For middle-income homebuyers, increasing the tax deduction limit for home loan interest under Section 24(b) from ₹2 lakh to ₹5 lakh could provide significant financial relief, especially in urban markets with rising costs. Furthermore, a new tax deduction for principal repayments under Section 80C could drive demand in the entire housing market. For affordable housing, the industry calls for an increase in the price cap. It demands raising it from ₹45 lakh to ₹70 lakh in metros which could help close the supply-demand gap. Thus ensuring more families can access homes in growing cities.

The Pradhan Mantri Awas Yojana (PMAY), backed by ₹10 lakh crore funding in the previous budget, remains essential to affordable housing development. Additional funding in Budget 2025 would support urban demand, helping cities with severe housing shortages. Rental housing could also see relief with proposals to raise the rental income tax exemption limit, making property ownership more viable. Simplified GST for under-construction properties is another area for potential reform, making real estate development more cost-effective.

However, the sector’s transformation requires more than just fiscal incentives; infrastructure development must also be a priority. Budgetary allocations towards building smart cities, incorporating IoT systems and efficient water management, could vastly improve urban living standards and drive investor interest. Investment in Tier II and III cities could spur growth, benefiting both residential and commercial segments by improving connectivity and expanding business opportunities.

Challenges and Hope

The challenges, however, remain pressing. One key issue is the high GST – between 5% and 28% – on construction materials, which escalates project costs. Reducing these taxes could lower housing prices, benefiting both developers and consumers. Additionally, developers, particularly in small and mid-sized projects, struggle with financing due to high borrowing costs and limited liquidity. Reforms in funding options, such as relaxed FDI norms and more favourable loan terms, are necessary to empower developers to meet the demand for both luxury and affordable housing.

The issue of double taxation on Real Estate Investment Trusts (REITs) is another concern, as it decreases their appeal to investors. Relief in this area could spur participation from both retail and institutional investors, further strengthening the market’s liquidity. Overall, there’s hope that these budget reforms will create a more favorable investment climate and drive demand in all segments of the market.

Budget 2025 and the Future of Indian Real Estate

Looking ahead, the implications of Budget 2025 will be far-reaching. Let’s unpack each real estate theme:

Luxury housing

The luxury housing market is expecting potential reforms that may shake up investment strategies for high-net-worth individuals (HNWIs). The removal of indexation benefits in Budget 2024 has already amplified tax liabilities, forcing sellers to pay 12.5% long-term capital gains (LTCG) taxes on properties held for decades. The removal of indexation benefits has already intensified long-term capital gains (LTCG) tax burdens, leaving High Net Worth property owners liable for the full difference between acquisition costs and sale prices, unadjusted for inflation. Also, there are speculations about a reintroduced inheritance tax leaving many wondering if their legacy investments might face harsher levies.

However, there is a silver lining. There could be possible tax reliefs targeting luxury housing—such as reduced LTCG rates or the return of indexation benefits—which could reignite investor confidence. Budget 2025’s decisions will determine whether the market sees renewed vibrancy or retreats under fiscal pressure, as HNWIs, developers, and policymakers navigate this high-stakes moment.

Affordable Housing

The upcoming Union Budget 2025 could significantly impact India’s affordable housing market, creating opportunities for growth in both urban and semi-urban areas. If interest subsidies or higher tax exemptions on affordable housing loans are introduced, demand could see a notable increase, especially among first-time homebuyers.

Additionally, policy measures to expand housing supply through public-private partnerships (PPPs) in Tier-II and Tier-III cities could address housing shortages and stimulate local economies. With nearly 65% of India’s population residing in these areas, increasing affordable housing infrastructure is essential to meet demand.

Sustained financial support for government schemes like the PMAY (Pradhan Mantri Awas Yojana) could further strengthen the affordable housing market while moving India closer to its goal of “Housing for All.”

Commercial Real Estate 

The Union Budget 2025 could bring key changes to commercial real estate, impacting office spaces, retail spaces, and foreign investments.

Office Spaces

Changes to corporate tax rates or new benefits for IT/ITES firms may affect office leasing trends. These companies, which are major tenants, could increase spending on office spaces if tax savings allow. Policies encouraging hybrid work models or incentives for eco-friendly office buildings may also shape demand for green-certified spaces.

Retail Spaces

Policies that boost the retail sector, like GST benefits for FMCG and other industries, could lead to higher demand for malls and high-street shops. With consumer spending set to grow, such measures might encourage more businesses to expand into retail spaces.

Foreign Investments

Simpler FDI rules could attract more foreign investments into commercial real estate. Clear policies and relaxed REIT regulations in luxury real estate along with enhanced ease of doing business, can position India as a global hub for high-end residential and premium mixed-use developments.

Industrial and Warehousing Sector

The Union Budget 2025 could offer key opportunities for India’s industrial and warehousing sectors. With growing e-commerce and “Make in India” policies, the sector could see more investment in infrastructure and logistics. Tax deductions for developers of warehousing facilities, linked to GST system improvements, could reduce costs. Reductions in duties on materials for warehouse construction could make development more affordable and attractive to investors.
The budget may also encourage the use of renewable energy in industrial parks and warehouses. Incentives for solar power or eco-friendly buildings could reduce costs and promote sustainability.

Alternative Real Estate Segments

The Union Budget 2025 holds great promise for alternative real estate segments like data centers, student housing, co-living spaces, and senior living. With the right support, these sectors could experience rapid growth.

Co-Living and Student Housing

The growing need for affordable urban housing for youth and students is creating a demand for co-living and student housing. The government’s schemes focusing on urban development and education hubs can push this sector forward. These policies may bring better infrastructure, increased investments, and new opportunities for developers.

Data Centers

Data centers are critical for digital infrastructure, and with the growing demand for online services, their importance will rise. Incentives for using renewable energy and clear guidelines on power and energy tariffs can make data center setups more attractive. Tax holidays or policies favoring foreign investments in digital infrastructure could provide a big boost.

Senior Living and Healthcare Real Estate

As India’s population ages, senior living and healthcare real estate are becoming more essential. The government may announce allocations to support healthcare and housing for the elderly. This could make the sector a hotspot for investment, especially if tax relief is offered to developers building healthcare-oriented real estate.

Potential Impact on Real Estate Stocks

Real estate stocks are likely to respond to these proposals in varied ways. If reforms addressing tax deductions, infrastructure growth, and affordable housing are implemented, they could lead to increased demand in key areas such as residential, commercial, and warehousing spaces. Furthermore, measures that ease construction costs, like reductions in GST on materials, would likely improve market conditions across the board.

REITs stand to gain if the government addresses the issue of double taxation, potentially boosting market liquidity. Stocks tied to infrastructure, particularly those involved in materials, logistics, and smart city projects, could experience positive momentum as budget-driven projects kick off across the country. Find detailed deep dive of real estate stocks impacted and other key budget updates on StockGro.

Conclusion

Yet, there are risks. Despite the anticipated reforms, issues such as high land acquisition costs, labor shortages, and the uneven demand between luxury and affordable housing will persist. If these concerns are not fully addressed, they could limit the effectiveness of the budget measures and prevent real estate from reaching its full potential.

As Budget 2025 draws nearer, the real estate sector remains full of hope but aware of the challenges ahead. The key will lie in how these proposed reforms are implemented—and whether they can meet the demands of a rapidly evolving housing market while balancing both high-end developments and the pressing needs for affordable housing.