The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman on February 1, has brought significant focus on urban infrastructure, housing, and investment, offering a slew of measures that are set to positively impact the real estate sector. While the budget did not introduce direct changes to property tax or home loan benefits, it laid out a comprehensive roadmap for urban development, housing, and infrastructure, aiming to address long-standing challenges and stimulate growth in the real estate industry.
SWAMIH Fund 2: A Lifeline for Stressed Housing Projects
One of the standout announcements in the budget is the establishment of SWAMIH Fund 2, a blended finance facility aimed at completing stalled housing projects. Building on the success of the first SWAMIH fund, which has already facilitated the completion of 50,000 dwelling units in stressed housing projects, the new fund will target the completion of an additional 1 lakh units. With a corpus of Rs 15,000 crore, the fund will be a collaborative effort between the government, banks, and private investors. This initiative is expected to provide much-needed relief to middle-class families who have been paying EMIs on loans for unfinished apartments while also bearing the burden of rent for their current accommodations.
Tax Relief for Residential Property Investors
In a move that will benefit residential property investors, the budget proposes to allow taxpayers to claim the annual value of two self-occupied properties as nil, without any conditions. Currently, this benefit is available only for one property and is subject to certain restrictions. This change is expected to provide significant tax relief to individuals who own multiple properties, encouraging investment in residential real estate.
Public-Private Partnerships (PPPs) in Infrastructure
The budget emphasizes the role of public-private partnerships (PPPs) in driving infrastructure development. Each infrastructure-related ministry will be required to come up with a 3-year pipeline of projects that can be implemented in PPP mode. States will also be encouraged to adopt this approach, with support available through the India Infrastructure Project Development Fund (IIPDF) scheme to prepare PPP proposals. This initiative is expected to unlock private sector investment in infrastructure, creating a ripple effect that will benefit the real estate sector.
Urban Sector Reforms and the Urban Challenge Fund
To address the challenges of urbanization, the budget introduces a series of urban sector reforms focused on governance, municipal services, urban land, and planning. These reforms will be incentivized to ensure effective implementation. Additionally, the government will set up an Urban Challenge Fund of Rs 1 lakh crore to support projects under the ‘Cities as Growth Hubs’, ‘Creative Redevelopment of Cities’, and ‘Water and Sanitation’ initiatives announced in the July Budget. The fund will finance up to 25% of the cost of bankable projects, with the remaining amount to be raised through bonds, bank loans, and PPPs. An allocation of Rs 10,000 crore has been proposed for 2025-26 to kickstart these projects.
Alternate Investment Funds (AIFs) and Taxation Clarity
The budget also provides clarity on the taxation of Alternate Investment Funds (AIFs), particularly Category I and II AIFs, which are actively investing in infrastructure and other sectors. By offering certainty on the taxation of gains from securities, the government aims to encourage more investments in these funds, which play a crucial role in financing large-scale infrastructure and real estate projects.
National Framework for Global Capability Centres (GCCs)
To promote the growth of Global Capability Centres (GCCs) in emerging tier 2 cities, the government will formulate a national framework to guide states. This framework will suggest measures to enhance talent availability, improve infrastructure, reform building bylaws, and foster collaboration with industry. By decentralizing economic activity, this initiative is expected to drive demand for commercial and residential real estate in smaller cities.
Support for Start-ups and States
The budget extends the period of incorporation for start-ups by 5 years, allowing start-ups incorporated before April 1, 2030, to avail of benefits. This move is expected to bolster the start-up ecosystem, which has been a significant driver of demand for office spaces and co-working hubs. Additionally, the budget proposes an outlay of Rs 1.5 lakh crore for 50-year interest-free loans to states for capital expenditure and incentives for reforms. This will enable states to undertake infrastructure projects, further stimulating real estate development.
Investment Friendliness Index of States
In a bid to promote competitive federalism, the government will launch an Investment Friendliness Index of States in 2025. This index will rank states based on their ease of doing business and investment climate, encouraging states to adopt investor-friendly policies. Such measures are expected to attract more investments in real estate and infrastructure across the country.
Conclusion
Budget 2025-26 has laid a strong foundation for the growth of the real estate sector by addressing key challenges and introducing measures to boost urban development, housing, and infrastructure. From the establishment of SWAMIH Fund 2 to tax relief for property investors and a renewed focus on PPPs, the budget has set the stage for a more robust and resilient real estate market. As these initiatives unfold, the real estate sector is poised to play a pivotal role in India’s economic growth story, creating opportunities for developers, investors, and homebuyers alike.
