Budget 2022: FM manages to keep the core of Real Estate sector demand drivers intact

For the real estate sector, Budget 2022-23 seems to rely on demand-supply market dynamics to drive growth in the coming fiscal, with a hope that the gains of the structural reforms set in motion over the last 5 years, will continue to keep the second largest employer after agriculture in momentum. The sector has been buoyant in 2021 resulting in falling inventory levels across markets and increased stamp duty collections across major states, signaling visible results of the string of budgetary initiatives since 2018, across segments of REITs, affordable housing, exemptions on capital gains and improved developer funding. The theme of this budget for real estate is consistent with the overall theme of keeping the core of the economy energised with higher government spending versus direct sops to sectors which have been riding a 4-5-year cycle of structural reforms.

The Finance Minister has steered clear of popular industry expectations of further rationalisation of tax regime in the form of GST relaxation towards under construction properties, reduction in key items of raw materials, granting of infrastructure status, and a bigger interest exemption for home buyers. The Budget has managed to keep the core of the sector demand drivers intact through a mix of direct and consequential benefits derived from creation of related infrastructure. Echoing the same sentiments, a pre-budget survey undertaken by Grant Thornton Bharat, 78% respondents said they are expecting an increase in the limit for tax exemption on housing loan interest to boost consumption.

The Prime Minister’s Gati Shakti and other government’s announcements to set up multi-modal logistics parks to connect urban transport to railways, will drive significant investments in logistics and warehousing. The Infrastructure status to Data Centres will propel the industrial and commercial segments of real estate through increased institutional investments. The proposed new legislation around Special Economic Zones (SEZs) should lead to increased capacity creation for industrial and commercial development. This is further expected to accelerate the real estate investment trust (REIT) story, with the emergence of sizable industrial and commercial assets. With continued focus on demand fulfilment in the affordable housing category, the INR 48,000 crore incentive for this segment will ensure the momentum of Pradhan Mantri Awas Yojana (PMAY) and a range of initiatives for providing affordable housing in the preceding budgets is not lost. The government has also maintained its long-term commitment for supporting creation of smart and sustainable real estate across Tier 2 and 3 cities, by establishing centres of excellence for urban planning.

The budget also seems to bank on the strong inter dependency of real estate with overall economy. The increase in government capital expenditure by 35% over FY22 budget estimates of INR 5.5 lakh crore to INR 7.5 lakh crores will continue to push all engines of the economy, and the real estate sector in particular, by keeping demand for housing, industries and commercial real estate high. It can, however, be argued that for a sector directly impacted by hardening interest rates, which is the likely outlook for FY23, the sector would have felt more reassured with direct support coming in from the budget as against the largely structural support approach seen in this budget.