What is an annual budget?

An annual budget is crucial in shaping the country’s economic landscape. The Finance Minister ( Mrs.Nirmala Sitharaman) presents the annual union budget. As per Article 112 of The Constitution of India, the budget is to be presented every first of February by the finance minister in the parliament.  The budget comprises fund allocation details of various sectors in the country.

It gives an estimate of the income and spending of the country for the coming financial year. The budget is prepared after a proper analysis and the right consultation. The major purpose of the budget is to fulfill the nation’s needs to ensure the right functionality.

The major parts of the budget involve the expenditure on the revenue receipts, the expenditure, and capital receipts with other sectors such online as health care, education, expenditure, and defense.

 

The Annual Budget (2024 – 2025)

The annual budget was presented by our honorable finance minister Mrs. Nirmala Sitharaman on February 1, 2024.

• The capital expenditure has a significant increase of 11.1% for the year (2024-2025) with a total of Rs.11.111 crore, which is 3.4% of the GDP,
• The GDP growth for the previous year (2023-2024) is at 7.3%,
• The Fiscal Deficit (when the government’s expenditure is more than its revenue, fiscal deficit arises) is narrowed down from 5.8 % to 5.1% for the present year,
• The tax revenue is expected to grow by 11%, accounting for Rs.38.31 trillion ($461.7 billion)
• A budget has been allotted to increase infrastructure,
• The primary focus will be on empowering women, youth development, farmer welfare, and poverty-driven areas.

The budget has received mixed reactions, some praised it for its emphasis on farmers’ welfare, women’s empowerment, and youth development. However, some criticized it for not giving importance to major reforms.

Impact on the Real Estate market

It seems to be a cautiously positive Interim Budget for the real estate sector. It may not have game changers at this point, but stable economic indicators, along with a focus on infrastructure and welfare in general, do set the tone. However, the real impact would be seen when the complete budget post-elections lists out the exact plans of the new government for the sector. Here are some impacts of the budget:

 

Impact on Specific Real Estate Segment

Increased spending on infrastructure: Better connectivity would mean better demand in emerging areas and housing prices to stay under limits of affordability. This may spell trouble, however, for established residential hubs where there is a saturating demand. (Ref: Savills India Interim Budget Analysis)

PMAY Schemes: Continuation in support for PMAY could indeed fuel demand for affordable housing, thereby benefitting developers catering to this segment. However, concerns about the actual delivery of these projects promptly and releases of funds concerning these continue to persist. (Ref: Knight Frank India Budget 2024 Analysis)

Economic Projections: There is certainly an atmosphere of cautious optimism concerning GDP growth (6.5%), which will be supportive of higher disposable income for the mid-market and luxury segments. However, affordability continues to be a concern for first-time homebuyers.

2. Commercial

Infrastructure Projects: Further connectivity with the new upcoming commercial hubs will lead to higher demand for office spaces. However, supply-related issues shall remain rampant in the old business districts. (Ref: CBRE India Market Outlook Report 2024)

Job creation: In terms of job creation, projected economic growth may lead to an increase in demand for office spaces and co-working spaces. Its effect on retail spaces will depend on consumer spending patterns and e-commerce penetration. (Ref: Business Today: Housing for the middle-class scheme)

Industrial Properties: A surge in infrastructure spending should come as a boon for logistics and warehousing around ports and transport corridors. But one cannot disregard the fact that competition by established industrial zones is still a reality. (Ref: Financial Express: Budget expectations 2024)

Key Budget Measures and their Implications on Real Estate

1. Increased Capital Expenditure

• A hike of 11.1% in capital expenditure has been promised on infrastructure development, impacting real estate across regions.
• Increased connectivity into upstart areas could unlock land value, generating demand for residential and commercial projects. Logistics and warehousing near new transport corridors may be facilitated.
• Anticipation of an oversupply of infrastructure in established hubs is the major problem, as infrastructure projects at some point will be focusing on different areas. In the realization of the hubs, timely completion and optimal utilization of infrastructure are still a key factor.

2. Continued Welfare Schemes

• Schemes such as PMAY (Pradhan Mantri Awas Yojana) aim to fuel demand for affordable houses,
• The rise in demand would benefit the majority of developers, who focus on the low-cost and mid-income segments.
• The incentives towards subsidies make homeownership more possible, and it would be believable for sales to go
• Timely release of funds in a manner that would enable speedier implementation would be a critically needed factor in the smooth implementation of these projects.
• Concerns for builder margins and the long-term sustainability of such schemes exist.

3. Fiscal Consolidation

• The 5.9% fiscal deficit targeted is a stable economic condition that impacts real estate.
• Stable fiscal management may enhance the confidence of investors in overall markets and could attract investments to real estate projects.
• A controlled fiscal deficit can result in stable interest rates, which, in turn, make home loans accessible, fueling the demand, especially in the affordable segment. However, a challenge might lie in rising interest rates.

Concerns and Unanswered Questions in the Interim Budget (2024-2025)

The interim budget will have an impact on the real estate market. However, there are some grey areas on the budget that need to be answered in terms of the real estate landscape.

• The absence of changes in the existing schemes will leave the existing challenges behind. High inventory in specific segments might still exist without measures to boost demand.
• Complex approval processes may still impede project timelines and raise costs.

Tax Benefits, Industry Status Changes, and Major Reforms

The silence on tax benefits, industry status changes, or major reforms keeps the future direction uncertain:

Tax breaks: Whether the continuation or the change of the existing tax benefits of Section 80IBA weighs upon investment decisions and keeps developers in suspense.

Industry status: Industry status to real estate would have unlocked benefits such as having access to cheaper credit, but its absence has left the question unanswered.

Specific reforms: The absence of clarity on possible reforms in land acquisition, rental regulations, or REITs is causing long-term planning to be in tatters.

 

Let’s do a recap!

Although there are not many changes in the budget compared to the existing one, there are some changes expected in the real estate field. Infrastructure development, taxation policies, affordable housing initiatives, interest rates, regulatory reforms, rural and urban development, foreign direct investment, job creation, and economic stability are some areas expected to flourish concerning the proposed budget.

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Frequently Asked Questions

1. How will the interim budget affect housing prices?

 

• It’s difficult to see the definitive impact on housing prices. While bigger infrastructure spending can boost demand in developing areas, worries of oversupply may weigh on established hubs.

 

• The various continued welfare schemes may prop affordable housing well but face challenges, including the timely allocation of funds. Ultimately, the impact will vary depending on the segment (affordable, luxury, etc.) and location.

 

2. Does the Interim Budget offer any tax breaks for the real estate sector?

 

• There has been no particular announcement made in the Interim Budget concerning tax changes applicable to the real estate sector. This keeps the developer in the dark about the future of existing benefits such as Section 80IBA, which impacts investment decisions. The clarion call on future tax policies will probably have to wait until the full budget after elections.

 

3. What are the concerns about the lack of major policy changes for real estate?

• Experts suggest that lacked announcements regarding inventory in certain segments and complex regulatory hurdles will cause the existing problems to exist.