Buffeted by an unprecedented global economic downturn and a delicate fiscal position, the government is likely to identify housing and construction sectors to spur growth in the broader economy.
Increased tax sops for home buyers and greater budgetary allocation to urban development schemes are expected to figure in the Budget 2009-10 that would be presented on July 6.
The urban development ministry has sought expansion of tax sops on interest payment on home loans and lower interest rates for houses priced between Rs 5 lakh and Rs 30 lakh.
A higher budgetary allocation for schemes like Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for the development of urban infrastructure and services in identified cities could also be in on the cards.
The allocation for JNNRUM is expected to nearly double to over Rs 12,000 crore from Rs 6, 686 crore in 2008-09 with government banking on construction activity to multiply growth across various sectors, including cement and steel.
Real estate — residential, commercial and retail — has seen a steep fall in demand across the country.
A recent report by credit rating and consulting firm Crisil, which examined the sector across 10 major cities in the country, showed that the retail and the commercial segments were the hardest hit as they witnessed an average price fall in realty prices from its peak in July 2008 to March 2009 by almost 35 per cent.
Industry experts estimate that low and middle-income segment housing, priced between Rs 10 lakh and Rs 30 lakh, will drive the real estate sector.
“There is lack of demand and that is the primary concern,” said Sudhir Nair, head, Crisil Research. “The developers will have to prepare themselves to operate on lower margins and build affordable houses.”
Experts believe demand will have to be brought into the market. “While developers need to offer value for money the government can increase the tax benefit on home loans as it would help in building demand,” said Om Choudhry, CEO, Fire Capital Fund.
International financial services firm Credit Suisse in a recent report said a healthy growth in the information technology sector was critical for reviving the real estate demand as the sector had created major demand for residential and commercial spaces.