Presenting the last full Union Budget 2023–2024 before the general elections next year, Finance Minister Nirmala Sitharaman termed the government’s priorities as ‘Saptarishi’ guiding the establishment through the ‘Amrit Kaal’.

To start with, the Finance Minister attempted to contain the fiscal deficit below 6 (from 6.4 per cent revised deficit) and bring it down to 5.9 per cent of GDP, in the next fiscal with a target of 4.9 per cent by 2025–2026. This should help keep interest rates moderate, thereby allowing people to finance their goals for home ownership. A moderate deficit will limit the government’s borrowings which will, in turn, help in keeping interest rates realistic over the next few years. This will also enable more of the population to avail of home loans. This is a positive sentiment for the residential real estate sector, over the next three to four years. In hindsight, although 6.3 per cent budgeted GDP is lower than in the earlier year, this leaves scope for a rise in coming years.

The rise in inflation (due to factors such as geopolitical, climate change, etc.) coupled with higher borrowings should keep interest rates fairly high. However, these should be capped due to a fiscal deficit below 6 per cent. Moreover, the 33 per cent capex outlay announced in this Budget should translate into rising employment, which augurs well for housing demand.

Notably, the surcharge on the highest slab of income tax has been reduced, which is a blessing in disguise. Decreasing the highest tax rate from 42 per cent to 39 per cent can boost the demand for luxury housing and big-ticket purchases.

Thrust on tourism a silver lining

As for commercial real estate, it will be driven by robust consumer activity leading to more footfalls in malls, etc. The government’s thrust on tourism is a silver lining because it is likely to result in a spurt of new tourism-related commercial establishments such as hotels and restaurants being set up, leading to an augmented demand for commercial real estate.

In the area of taxation, despite the upbeat announcements, the status quo has been maintained with respect to disposable income. Clearly, the purpose of this Budget’s tax measures was to transition from the old tax regime (which gives exemptions for home loans) to the new tax regime that has not given any additional exemptions for home loans, etc. The bright side is that the rise in the per capita income (₹1.97 lakh ) signifies rising aspirations and affordability for owning a house.

The announcement of ₹10,000 crore per year for an urban infrastructure fund to ramp up cities should help Tier 1 and Tier 2 cities receive a boost, which should narrow the infrastructure gap with Tier 1 cities. This infrastructure spending should have a cascading effect on housing demand in Tier 2 and Tier 3 cities.

Consistent with the government’s philosophy for housing for all, the Budget has effected a whopping 66 per cent increase for Pradhan Mantri Awaas Yojana (PMAY) to ₹79,000 crore this year. This should result in many more homes being built in the LIG/MIG segment. This also indicates the government’s focus on growing the real estate sector due to its amplified potential for job creation — directly or indirectly. Besides, recognising the employment generation potential of the real estate sector, the government has further increased the thrust on PMAY.

Among the slew of measures announced, keeping in line with the green growth policy to reduce carbon intensity, green building is one of the initiatives. Urban planning and green buildings can result in changes in the composition of houses built. Hence, real estate can do its bit to contribute to the environment when the demand (for green building) picks up. Overall, in a year of slowdown, theBudget has attempted fiscal consolidation with the hope to keep inflation down and set the tone for a $5-trillion economy.

The writer is National Vice-Chairman, NAREDCO, and MD, Hiranandani Group

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