Impact of Budget 2025 on the Indian Real Estate Sector

The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman on February 1, has created ripples in the Indian economy, especially in the real estate sector. With a series of proposals aimed at boosting disposable income, easing tax burdens, and resolving stalled housing projects, the budget could significantly impact homebuyers, investors, and developers alike. Here’s a detailed look at how the Budget 2025 is expected to shape the Indian real estate landscape.

1. Tax Relief for Middle-Class Homebuyers: No Tax for Incomes up to ₹12 Lakh

One of the major announcements in Budget 2025 is the income tax relief for middle-class earners. The Finance Minister declared that no income tax would be payable on earnings up to ₹12 lakh (₹12.75 lakh, including standard deductions) under the new tax regime. This change is expected to significantly enhance disposable income for a large segment of the population.

By reducing the tax burden on middle-income earners, the government aims to increase spending power, which will likely drive demand for housing. Real estate experts believe that this will spur both primary and secondary housing markets, particularly for middle-class homebuyers.

As Finance Minister Nirmala Sitharaman put it, “The new structure will substantially reduce taxes for the middle class, leaving more money in their hands to boost consumption, savings, and investment.”

Impact on Real Estate:

• Increased demand for housing as middle-class homebuyers now have more money to invest in properties.
• Positive impact on both the primary housing market (new homes) and the secondary market (resale homes).
• A potential rise in property transactions and home loan approvals.

2. SWAMIH Fund-2: A Game Changer for Stalled Projects

In an effort to address the ongoing housing crisis caused by stalled projects, Budget 2025 allocated ₹15,000 crores to the SWAMIH Fund-2 (Special Window for Affordable and Mid-Income Housing). This fund aims to complete 1 lakh units in delayed housing projects, offering much-needed relief to thousands of homebuyers affected by the delays.

The success of the existing SWAMIH scheme, which has already completed 50,000 homes with 40,000 more in the pipeline, underscores the government’s commitment to resolving the housing backlog.

Impact on Real Estate:

• A boost to supply of ready-to-move-in homes, particularly in the affordable housing segment.
• Increased buyer confidence, as stalled projects are set to be completed.
• Stabilization of the real estate market by reducing uncertainty around delayed projects.

3. Increased TDS Limit on Rent to ₹6 Lakh: Relief for Small Landlords

Budget 2025 proposed raising the TDS (Tax Deducted at Source) threshold on rental income from ₹2.4 lakh to ₹6 lakh annually. This move will benefit small landlords and taxpayers by easing compliance burdens and promoting a more investor-friendly environment.

According to experts, this change will improve the liquidity of landlords, especially in metro cities, and support the rental housing market. In addition, investors can now claim Nil valuation for two self-occupied properties, which removes the taxation on notional rental income from a second home.

Impact on Real Estate:

• Reduced tax pressure for landlords and property owners, encouraging more investment in the real estate market.
• Greater affordability for homeowners and investors, particularly in second homes.
• Increased participation in the rental housing market, particularly in high-demand metro cities.

4. ₹1 Lakh Crore Urban Challenge Fund: Transforming Urban Infrastructure

Budget 2025 introduced the ₹1 lakh crore Urban Challenge Fund, aimed at boosting urban infrastructure and unlocking the real estate potential of cities. This fund, coupled with incentivized urban reforms, is designed to improve governance, municipal services, and city planning, all of which are key enablers of sustained commercial growth.

By focusing on urban development, the government aims to transform cities into major growth hubs that will attract both domestic and international investment.

Impact on Real Estate:

• Infrastructure growth will unlock new areas for real estate development, especially in Tier-2 and Tier-3 cities.
• Improved connectivity and better urban planning will make previously underdeveloped areas more attractive for both residential and commercial investments.
• Enhanced urban infrastructure will likely result in higher property values in newly developed or upgraded areas.

5. Support for Global Capability Centres (GCCs): Boost for Office Space Demand

The government’s focus on strengthening Global Capability Centres (GCCs) is expected to fuel demand for office spaces in major metros such as Bengaluru, Mumbai, Hyderabad, Pune, and Chennai, as well as in emerging cities. A national guidance framework will be introduced to help states attract and promote GCCs, further boosting India’s position as a global business hub.

As a result, there will be increased demand for both commercial office spaces and related infrastructure, making the commercial real estate market more attractive to investors.

Impact on Real Estate:

• Growth in office space demand in key cities as GCCs expand.
• Increased interest from institutional investors in commercial real estate.
• A rise in demand for mixed-use developments (residential and commercial properties) in urban areas.

6. No Specific Policies for Affordable Housing: A Missed Opportunity?

While Budget 2025 brought several positive changes for the real estate sector, many experts feel the affordable housing segment was largely overlooked. G Hari Babu, National President of NAREDCO, pointed out that rising home loan interest rates and an outdated definition of affordable housing continue to be significant barriers for potential homeowners.

He emphasized that the government should revise the housing cap for affordable housing projects, which has remained unchanged for almost eight years. This stagnant cap makes it difficult for developers to deliver affordable homes within the current limits.

Impact on Real Estate:

• Limited focus on affordable housing could hinder the growth of this critical segment.
• The rising interest rates and the outdated definition of affordable housing continue to create challenges for homebuyers in lower-income groups.

Conclusion: A Mixed Bag for the Real Estate Sector

Budget 2025 brings a host of promising reforms that are expected to have a significant impact on India’s real estate sector. From tax relief for middle-class homebuyers to the expansion of the SWAMIH Fund-2 to address stalled projects, the government’s initiatives are likely to spur demand in the housing sector.

However, experts argue that the affordable housing segment could have received more attention, especially in light of rising home loan interest rates and the outdated affordable housing caps.

Overall, the budget has provided several positive measures for the real estate industry, making property ownership more accessible for the middle class, easing the compliance burden on landlords, and driving demand for housing and office spaces. With the right focus on affordable housing in the future, the sector could see even greater growth and transformation in the coming years.

Disclaimer: The views and opinions expressed in this blog are based on the proposals in the Budget 2025, and the actual impact may vary depending on implementation and other external factors. For specific advice or updates, we recommend consulting a financial expert or real estate professional.