UNION BUDGET and impact on CONSTRUCTION SECTOR

- Anuj Puri

Chairman, ANAROCK Group

The annual Indian Union Budget plays a crucial role in determining the direction of the country's economy and various sectors, including the construction sector. The budget's announcements and policy measures can impact the construction sector in several ways.

If the government allocates more funds for these areas, it can lead to increased demand for construction services and result in higher investment in the sector. A reduction in the allocation of funds can lead to a slowdown in the sector and result in lower demand for construction services.

If the government announces measures to make credit more accessible and affordable for developers and builders, it can lead to an increase in investment in the sector and drive growth. If the availability of credit tightens, it can result in a slowdown in the sector.

Announcement of tax incentives for developers and builders will encourage investment in the sector. If the government announces measures that increase the regulatory burden on the sector, it can result in a slowdown in the sector.

Budget 2023-24: Balanced but tepid for Real Estate

The new measures announced in the Union Budget 2023-24 may certainly help unleash Indian economy's potential. However, from a real estate point of view, there were no major direct announcements that could be seen as immediate booster shots.

The enhanced allocation for PM Awaas Yojana by 66% to over Rs 79,000 crores is certainly a boost for affordable housing, which was flagging due to increased input costs and also because the buyers in this segment, mostly from the unorganized sector, were still reeling under the impact of the pandemic. It is another step towards the government's mission of Housing for All.

The Budget lays much emphasis on building the infrastructure of the country, with emphasis on last-mile connectivity. Improved urban infrastructure will provide further impetus to Tier 2 & 3 cities. The unwavering focus on infrastructure will indirectly drive real estate growth over the next one year. The tourism sector also has something to cheer for as the budget aims to boost domestic and international tourism.

As anticipated, the FM also tried to rejuvenate the MSMEs sector which has a multiplier impact on the growth of the overall economy. The revamped credit guarantee for MSMEs and special tax benefits and deductions will provide impetus to overall industrial development, and this can have a rub-off effect on the real estate sector since the pandemic slowed down demand for affordable housing in 2021 and 2022.

Resultantly, new supply in this segment also reduced. As per ANAROCK Research, 2022 saw a trend reversal with the share of new supply in the affordable housing category (<Rs 40 lakh) dipping to 20% of total 3.58 lakh units launched in top seven cities from 40% of 2.37 lakh units launched in 2019.

Changes in the income tax slabs, including exemption for income up to Rs 7 lakh under the new tax regime and the new tax slabs will doubtlessly benefit the middle class. However, whether the housing sector will get a collateral boost, remains to be seen. The new tax regime offers no benefits that taxpayers can avail of under any Sections, including Section 80C - the previous home loan tax benefits.

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