Real Estate Sector Eyes Policy Support in Budget 2026 for Housing Growth

As India approaches Union Budget 2026, the real estate sector stands at a critical juncture where policy decisions will significantly impact housing affordability and urban development. The industry has demonstrated unexpected resilience over the past two years, maintaining steady demand across housing segments while navigating global uncertainties and domestic policy changes. Sector Resilience and Market Dynamics The real estate market has shown remarkable stability, with premium and luxury segments continuing to attract buyers seeking long-term asset security. This sustained momentum reflects improved regulatory maturity, enhanced governance standards, and rebuilt trust between developers and homebuyers. The sector's performance has been supported by RERA-compliant disclosures and digital transaction platforms that have increased transparency and buyer confidence. Key Budget Expectations and Policy Priorities Industry stakeholders anticipate several critical policy measures in the upcoming budget. The primary focus remains on maintaining continuity in long-term housing and urban development programs, which enables better project planning and sustained employment across construction and allied industries. Infrastructure Status and Capital Access Policy Measure Expected Impact Infrastructure-equivalent status for housing Improved access to patient capital at lower costs Tax rebates and incentives Enhanced long-term funding confidence Stable policy framework Better capital structuring for developers and investors Granting housing infrastructure-equivalent status would unlock access to patient, long-tenure capital at reduced financing costs, enabling more sustainable project development and improved affordability for end-users. Affordability Enhancement Measures The revision of affordable housing price caps represents a crucial area requiring immediate attention. The current threshold of ₹45 lakh needs updating to reflect contemporary urban land and construction costs that have evolved significantly over the past decade. Proposed Affordability Reforms Price Cap Revision: Updating the ₹45 lakh limit to reflect current market realities Interest-linked Incentives: Enhanced home-buying benefits for first-time buyers Tax-related Support: Improved buyer confidence through fiscal measures Market-aligned Benefits: Ensuring policy relevance to today's homebuyers These measures would help bridge the gap between housing aspiration and access, particularly benefiting first-time buyers while encouraging developers to launch projects in affordable and mid-income segments. GST Rationalization and Cost Management Streamlining GST on construction-related items emerges as another priority for reducing cost pressures across the value chain. Current taxation structures on construction inputs significantly impact project viability and delivery timelines. Current Challenge Proposed Solution Expected Outcome Complex GST structure Streamlined construction input taxation Reduced cost pressures Cash flow constraints Improved developer liquidity Timely project delivery High input costs Balanced tax framework Competitive pricing for buyers A simplified tax framework would enhance the sector's ability to deliver projects at scale while maintaining quality standards and meeting delivery commitments. Industry Transformation and Future Outlook The real estate sector has undergone significant institutional transformation, characterized by improved regulatory oversight, technology adoption, and enhanced buyer awareness. RERA compliance has standardized disclosures, while digital platforms have revolutionized transaction processes. This evolution positions the industry for sustainable growth with appropriate policy support. The upcoming budget presents an opportunity to reinforce this positive trajectory through progressive policy measures focusing on affordability, rationalization, and stability while recognizing evolved market conditions and supporting the vision of housing for all. The Union Budget for FY26-27 is expected to prioritize infrastructure spending and structural reforms over major policy announcements, according to PL Capital's latest report. The brokerage anticipates incremental changes rather than sweeping reforms, as India navigates global geopolitical uncertainty, trade tensions with the US, and slowing private investment. Despite these challenges, India maintains its position as the world's fastest-growing large economy and ranks fourth globally by GDP size. Economic Growth Projections PL Capital highlights a mixed growth outlook for India's economy. The firm projects a temporary deceleration in GDP growth to 6.4% in FY25, marking the weakest performance in four years due to subdued private investment, manufacturing slowdown, and global economic pressures. Growth Metric: FY25 (Projected) FY26 (Forecast) Key Drivers GDP Growth: 6.40% 6.50% - 6.80% Government spending, monetary easing FY26 Growth: 7.00% - 7.30% - Supported by rate cuts, tax reforms The recovery in FY26 is expected to be driven by government spending, monetary easing measures, and improving consumer demand, despite external headwinds including punitive US tariffs. Capital Expenditure Outlook Capital expenditure is projected to see moderate growth in FY27, with PL Capital expecting high single-digit to low double-digit increases in capex allocations. Government capex rose 28.00% by November on a low base, though overall FY26 spending is expected to remain largely on target with limited scope for upward revisions due to absence of supplementary approvals. Sector Focus: Expected Allocation Trend Defence: Double-digit increase Power & Infrastructure: Increased allocation Roads & Transportation: Priority sector Water & Sanitation: Enhanced focus Defence spending is likely to register double-digit growth amid rising geopolitical tensions, supported by Defence Acquisition Council approvals worth nearly ₹3.80 lakh crore in CY25. Sectoral allocation is expected to rotate toward power, roads, infrastructure, water, and sanitation, driven by PPP approvals. Taxation and Revenue Concerns PL Capital does not anticipate further rationalization of direct taxes in Budget 2026, following last year's major personal income tax adjustments. The brokerage notes concerns around tax collections, with year-to-date corporate and personal income tax growth remaining below FY26 budgeted estimates, increasing the risk of shortfall in direct tax revenues. Fiscal Deficit Challenges The report warns of potential mild slippage in fiscal deficit due to weaker tax collections and higher incentive outlays. While the government aims to meet its FY26 deficit target of 4.40% of GDP, higher interest costs and dependence on RBI dividends will be key variables to monitor. PL Capital emphasizes that fiscal metrics will face pressure from both revenue and expenditure sides in the upcoming budget cycle. We’re building Scanx - to help you express your trading & investing idea, to help you analyse the markets better. Stock Markets are the true indicator of the growth of any country's economy. We are bullish on India, we are bullish on India's prospects to be one of largest economies of the world. 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