With a contribution of nearly 7.3% to India’s GDP, the real estate sector is undeniably a cornerstone of the nation’s economy. However, the complex and ever-changing regulatory environment continues to pose challenges for its growth and potential.
Stability in policy and favourable regulatory measures are critical for the sector’s progress, yet India’s dynamic legislative landscape often brings uncertainty. The Union Budget 2024 presented fresh regulatory changes that have left stakeholders—property developers, investors, and homebuyers—re-evaluating their strategies. While expectations were high for streamlined industry status and a single-window clearance system, the reforms introduced were of a different nature, altering the balance within the sector. As these changes come into force, stakeholders must remain vigilant and adapt to the evolving framework. Among the notable changes is the modification of the holding period for long-term assets, which has been standardised with the equity market to ensure uniformity in tax treatment.
This shift is anticipated to enhance the appeal and liquidity of newer asset classes such as Real Estate Investment Trusts (REITs), Small and Medium Real Estate Investment Trusts (SMREITs), and Infrastructure Investment Trusts (InvITs). By reducing the holding period for long-term assets from three years to one year, the government aims to stimulate liquidity, thereby boosting the real estate sector, valued at approximately $300 billion. Additionally, the government proposed the removal of the indexation benefit for property sales. This measure prevents property owners from adjusting the acquisition cost against inflation, effectively increasing their tax liabilities. While the reduction in long-term capital gains tax from 20% to 12.5% on all investments—except for debt—was initially introduced to counterbalance this removal, it faced criticism for potentially dampening real estate investment activities.
Responding to the backlash and concerns over reduced investment, the government has revised the reform to provide taxpayers with an option. Taxpayers can now choose between the old 20% tax rate with indexation benefits or the new 12.5% rate without indexation. This dual option allows individuals to select the most advantageous tax treatment based on their holding period and inflation impact, easing the financial strain on middle-class homeowners and potentially spurring demand for affordable housing. The government is also pushing for improved ease of doing business through initiatives such as the Business Reforms Action Plans, digitisation, and simplified custom duties. These measures are expected to attract more Foreign Direct Investment (FDI) and stimulate overseas investment in India. The anticipated reforms could significantly enhance business activities, create jobs, and contribute to real estate growth.
Monitoring these developments closely will be crucial for stakeholders to devise effective strategies, especially as infrastructure-focused initiatives are likely to benefit commercial real estate players. India’s real estate sector is at a critical juncture, with new reforms and policy changes redefining its trajectory. The Union Budget 2024 has introduced several measures, particularly around capital gains tax and asset holding periods, which could reshape the sector. As the regulatory environment evolves, it is imperative for developers, investors, and homebuyers to stay informed and agile in their decision-making to navigate this complex landscape successfully.
