Real estate sector in India is witnessing a strong revival driven by higher investments in physical assets, demand for larger homes and need for more office space after the pandemic. While the pick-up is seen across the country, there are certain pain points such as waning demand from lower income groups. The Centre should do all it can to ensure sustained growth in this sector given its cascading effect on other sectors such as steel, cement, and transport.

Headline residential real estate sales were 12 per cent higher in the September 2023 quarter compared to the same quarter last year and 135 per cent of quarterly sales in 2019. The sector is now coming out of an extended slump with sales hitting a six-year high this year. Developers are also gearing up to meet surging demand with project launches in the September quarter 23 per cent higher over last year. According to Knight Frank, the increase in demand has also helped lower the stock of older inventory with the average age of inventory decreasing to 16.1 quarters compared to 17.6 quarters last year. Transactions in office space also witnessed a healthy 17 per cent increase in the period mainly led by demand from global capability centres, which accounted for 44 per cent of the demand.

A large chunk of the home buying in the recent past has been funded by bank loans, as lower rates of interest and easy credit in the initial years of the pandemic made home purchases easier. Housing loans of scheduled commercial banks towards the end of August 2023 stood at ₹24.56-lakh crore; doubling from ₹12.1-lakh crore in August 2019. But as interest rates have increased sharply over the past year, the lower- and middle-income home buyers appear to have cut back on home purchases. This is evident in the fall in sale of homes priced below ₹50 lakh in the September quarter of 2023, even as the mid-size and premium houses are finding many takers. There could be some speed bumps for the medium and premium housing market too. The slowdown in the global economy is beginning to impact hiring and pay-rises in the IT sector which has been among the major drivers of consumption demand in the country. Impaired purchasing power among employees in the IT services sector could begin to show up in the coming quarters.

The Centre should do its best to ensure that the momentum in real estate demand is sustained. Given the continuing shortage of housing among the economically weaker sections in urban India, the Centre could consider extending the deadline for PMAY (U) and resume sanctioning fresh houses. Resumption of the credit linked subsidy scheme can be useful in financing smaller houses. Also, while tax breaks on interest paid on home loans are available in the old income tax regime, they are not available in the new tax regime. The Centre could consider other non-tax incentives to support revival in the real estate market.