On July 23, 2024, Finance Minister Nirmala Sitharaman presented the Union Budget 2024-25 in the Lok Sabha. This budget, her seventh in a row, emphasises India’s stable and low inflation rate, currently progressing towards the target of 4%, with core inflation (excluding food and fuel) at 3.1%. The budget prioritises productivity and resilience in various sectors, including agriculture, employment, inclusive human resource development, manufacturing and services, urban development, energy security, infrastructure, innovation, research and development, and next-generation reforms.

Here’s a detailed look at how the Union Budget 2024-25 will impact the commercial real estate industry:

Urban Development and Infrastructure

The budget significantly emphasises urban development and infrastructure, vital for the growth of the commercial real estate sector. Transit-oriented development plans for 14 large cities, each with a population exceeding 30 lakh, will be formulated. These plans will include implementation and financing strategies to ensure sustainable and efficient urban growth. Such development is crucial for creating business-friendly environments and boosting commercial real estate values.

Rental Housing Reforms

The budget introduces policies and regulations to create efficient and transparent rental housing markets. These reforms aim to enhance rental housing availability, which is crucial for supporting the workforce in urban areas. The initiative to facilitate dormitory-type accommodations for industrial workers through public-private partnerships (PPP) with Viability Gap Funding (VGF) support is particularly noteworthy. These reforms will ensure a steady supply of rental housing, indirectly supporting the commercial real estate sector by providing adequate housing for the urban workforce.

Land-related Reforms

Urban Land Reforms:
* Digitisation of land records with GIS mapping.
* Establishment of an IT-based system for property record administration, updating, and tax administration.

These reforms will streamline land administration, improve the financial position of urban local bodies, and facilitate the growth of the commercial real estate market. Efficient land management and clear property records are essential for attracting investments and ensuring smooth transactions in the commercial real estate sector.

Cities as Growth Hubs

The government will collaborate with states to develop ‘Cities as Growth Hubs’ through economic and transit planning and orderly development of peri-urban areas using town planning schemes. This initiative aims to transform cities into engines of economic growth, creating opportunities for commercial real estate development. As cities expand and modernise, the demand for commercial spaces, including office buildings, retail spaces, and coworking hubs, will rise significantly.

Creative Redevelopment of Cities

The government will formulate frameworks for enabling policies, market-based mechanisms, and regulations to enable creative brownfield redevelopment of existing cities with transformative impacts. These frameworks will facilitate the redevelopment of underutilised urban areas, provide opportunities for commercial real estate projects, and contribute to the overall modernisation of city infrastructures.

Industrial Parks and Plug-and-Play Infrastructure

The budget outlines the development of investment-ready “plug and play” industrial parks with complete infrastructure in or near 100 cities. These parks will be developed with states and the private sector, leveraging town planning schemes. Such initiatives are designed to attract businesses and investors, driving demand for commercial real estate, including flexible workspaces and coworking spaces that cater to dynamic business needs.

Support for Coworking Spaces

The commercial real estate sector benefits significantly from the growing trend of flexible workspaces and coworking spaces. The budget’s focus on developing urban infrastructure and efficient land management supports the growth of coworking spaces, which require well-planned urban environments and reliable infrastructure. Coworking spaces offer flexible, cost-effective solutions for businesses, entrepreneurs, and freelancers, aligning with the budget’s broader goals of fostering innovation and economic growth.

Reactions from Industry Leaders

The commercial real estate industry has reacted positively to several key aspects of the Union Budget 2024-25:

Aravind Maiya, CEO, Embassy REIT:
“Reducing the holding period for long-term capital gains from 36 to 12 months puts us at par with listed equity shares, further popularizing the REIT asset class in India. This move will enhance the attractiveness of REIT products, increasing investor participation.”

Murali Malayappan, Chairman & MD, Shriram Properties:
“The government’s step towards digitizing India’s archaic land documentation system is a game-changer, facilitating property transactions, reducing disputes, and encouraging investment. However, GST rationalization for the real estate industry and granting industry status remain unaddressed.”

Venkatesh Gopalakrishnan, Director Group Promoter’s Office, MD & CEO – Shapoorji Pallonji Real Estate (SPRE):
“The increase in the affordable housing deduction for interest paid on loans is a positive change that will provide much-needed relief to homebuyers and boost the real estate market.”

Ashwin Sheth, Chairman & MD, Ashwin Sheth Group:
“The focus on efficient urban planning, including transit-oriented development and enhanced infrastructure for water supply, sewage, and waste management across 100 large cities, will elevate the quality of urban living.”

Manas Mehrotra, Founder, 315Work Avenue:
“Taking into consideration the popularity of hybrid working, the budget could have met a few expectations of the coworking sector, particularly a lower GST rate for small-scale coworking clients and the establishment of a single-window clearance system. A lower/concessional rate of TDS would improve working capital for the coworking industry.”

G Hari Babu, National President, NAREDCO:
“The development of industrial parks in 100 cities under the Industrial Corridor initiative is expected to create new real estate opportunities in these areas, potentially leading to the growth of commercial and residential properties.”

Anshul Jain, Chief Executive – India, SE Asia & APAC Tenant Representation, Cushman & Wakefield:
“The abolition of angel tax and reduction of corporate tax on foreign companies are encouraging for start-ups and Global Capability Centers (GCCs), major drivers of commercial real estate demand.”

Pradeep Misra, Chairman & MD, Rudrabhishek Enterprises:
“The budget’s announcement of fund allocation for the Hyderabad-Bengaluru industrial corridor and Vizag-Chennai corridor will boost growth along these corridors, consequently driving real estate growth.”

Anurag Mathur, CEO, Savills India:
“The budget’s attention to urban and rural development, with rental housing for industrial workers through the PPP model, interest subsidies for rental housing, and transit-oriented developments, is commendable.”

Pavitra Shankar, Managing Director, Brigade Enterprises:
“The budget, however, has not addressed some key demands of the real estate sector, including granting industry status, input tax credit, reduction of GST, and single-window clearance.”

Niranjan Hiranandani, Chairman, Hiranandani Group:
“Innovative initiatives such as the digitization of land records, GIS mapping, and urban housing for the middle class, combined with workforce skilling, are expected to have a profound multiplier effect on the burgeoning real estate sector, currently experiencing double-digit growth.”

Rajeev Vidhani, Partner, Khaitan & Co:
“The finance minister’s decision to address some of the teething issues highlighted in the MCA discussion paper of 2023, along with adding more NCLT benches and setting up exclusive benches to adjudicate on company law matters, will aid the swiftness needed in insolvency cases.”

Dhruv Agarwala, Group CEO of Housing:
“The Finance Minister’s decision to remove the indexation benefit for long-term capital gains (LTCG) tax on real estate marks a significant shift for the sector. While the intention to simplify and rationalize the tax regime is clear, the removal of the indexation benefit could lead to a higher tax burden on real estate transactions.”

Final Words

The Union Budget 2024-25 introduces several initiatives that promise to boost India’s commercial real estate sector. From urban development and rental housing reforms to land management and creating industrial parks, these measures create a conducive environment for commercial real estate growth. Additionally, the support for flexible workspaces and coworking hubs aligns with the evolving needs of modern businesses, making the commercial real estate sector a key beneficiary of the budget’s forward-thinking policies. As cities evolve into growth hubs and infrastructure improves, the commercial real estate market is poised for significant expansion and innovation.