What’s New in Union Budget 2025: Insights & Impact on Real Estate

All eyes were on the Indian Finance Minister, Ms. Nirmala Sitharaman, last Saturday and it was not solely due to her striking choice of sarees. Like her previous Budget presentations, the Union Budget 2025 also had some expectations from the Indian real estate sector. How did the Union Budget fare this year – does it address the long-standing challenges while also creating more new opportunities for growth?

Here’s a comprehensive analysis of what India’s real estate expected from the Union Budget 2025, the changes announced, and their potential impact on the market.

Increased Affordable Housing Limits

One of the primary demands from the real estate sector was to increase the monetary cap for affordable housing from the current ₹45 lakh to between ₹75 lakh and ₹1 crore. This adjustment was required as a more realistic amount, given soaring construction costs and inflation, especially in metropolitan areas where property prices have surged.

Though not directly addressing this demand, the Union Budget 2025 has announced ₹1.5 lakh crore in interest-free loans to states for urban development – a portion of which is expected to facilitate the completion of affordable housing projects.

Additionally, the announcement of the ₹15,000 crore SWAMIH Fund 2 (Special Window for Affordable and Mid-Income Housing Fund 2) is a powerful move that is aimed at expediating the completion of stalled housing units. A potential 1 lakh homes could be completed and made available, leading to an increase in affordable housing inventory.

Tax Deductions for Home Loans

An increase in the tax deduction limit on home loan interest payments from ₹2 lakh to ₹5 lakh was another ask from the sector. Additionally, there were multiple calls to remove the cap on principal repayment deductions under Section 80C.

Again, though not a direct answer, by introducing broader tax relief measures, including a new income tax exemption limit set at ₹12 lakh, the Union Budget 2025 has freed up disposable income.

The increase in disposable income can allow middle-class households to allocate a higher percentage of their earnings toward home loans, thereby reducing EMI burdens for properties priced between ₹75 lakh and ₹1.2 crore.

Experts predict that this could lead to a 15-20% rise in first-time buyers across Tier 1 and Tier 2 cities, including the NCR, by late 2025/early 2026.

Simplified GST Regulations

Various industry stakeholders had hoped for a rationalization of Goods and Services Tax (GST) laws to reduce project costs and improve working capital efficiency for developers.

While full GST rationalization was not achieved, the Union Budget 2025 had some positive developments, such as increased TDS thresholds on rental income.

The new TDS threshold on rental income doubled to ₹6 lakh will benefit approximately 2.8 million landlords and stimulate rental market activity.

Industry Status for Real Estate

For many years now, the real estate sector has sought a formal “industry” status, which would facilitate access to cost-effective funding and enhance investment opportunities.

Unfortunately, the Union Budget 2025 did not grant formal industry status to the sector. However, measures such as a ₹10 lakh crore asset monetization plan and a ₹1 lakh crore Urban Challenge Fund were announced. These initiatives are expected to boost construction activities and provide more jobs, contributing to economic growth.

Wider Economic Ripples

The Indian real estate sector is at a crucial juncture, and grappling with urban slowdowns, rising fiscal deficits, and global uncertainties. Though the Union Budget 2025 did not address all the expectations, economists predict its overall announcements will have a positive impact on Indian real estate, particularly in residential real estate.

Direct Boost to Homebuyer Affordability

The increase in the income tax exemption limit to ₹12 lakh under the new regime will affect the real estate market by potentially stimulating housing demand.

The ₹75,000–₹1.2 lakh annually that will now be retained by middle-income homebuyers, allows them to allocate more towards home loans, reducing EMI burdens.

Rental Market Transformation

With the increased TDS rental income limits (now set at ₹6 lakh/year), landlords are set to save on taxes. This will benefit about 2.8 million landlords and is expected to stimulate demand for rental properties across urban areas.

Nil Valuation for 2 Properties

The Union Budget 2025 now allows taxpayers to claim nil valuation for two properties. Homeowners can now designate two homes as self-occupied, effectively eliminating the tax on notional rental income from a second home. This reform will reduce tax burdens while promoting real estate investment.

Secondary Market & Investment Shifts

Additionally, increased interest from NRIs in rental-focused REITs indicates a positive shift toward investment in real estate.

Market Response

Following the Union Budget 2025 announcements, the real estate market has shown a noticeable surge in activity. Home loan inquiries have risen from 12,500 per day in January 2025 to 18,200 per day in February, while rental agreements have also seen a significant boost, climbing 31% from 8,700 to 11,400 per day.

Additionally, real estate stocks rose over 9% on Saturday, with investor confidence renewed.

Long-Term Outlook

The Union Budget 2025 has brought relief to homebuyers by reducing income tax liabilities, eliminating deemed rental income taxation, increasing affordable housing limits, and enhancing tax deductions for home loans. These measures are expected to improve financial mobility while also ensuring strong government support for stalled projects.

The Indian real estate sector will see greater growth, with analysts predicting a 12% CAGR in residential sales over the coming years and improved rental yields, particularly in Tier 2 cities.

By introducing policies to boost affordability and accessibility, the budget lays a strong foundation for sustainable growth. The incentives for rental housing development are also expected to improve housing accessibility for urban migrants and professionals.

If effectively implemented, these measures could pave the way to long-term stability and expansion, making for a more inclusive housing market. Strategic investments and developer-friendly policies will further strengthen the sector’s revival, strongly positioning real estate as a critical driver of the country’s economic progress.

Stay tuned for more updates! And if you are wondering what to do with the windfall of lower taxes that the Union Budget 2025 brings you, contact Team Save Max. We will help you find your dream home – whether it is in Bangalore, Pune or Gurugram.