Government Policies Affecting Real Estate in India

The real estate sector in India is one of the most important contributors to the country’s GDP and employment generation. With rapid urbanization and the growth of the middle class, the demand for residential, commercial, and industrial spaces continues to rise. However, the growth and stability of this sector heavily depend on government regulations and policies.

In recent years, the Indian government has implemented various initiatives and reforms that have significantly impacted the real estate market. Let’s explore the key policies and how they are shaping the future of real estate in India.

1. RERA (Real Estate Regulation and Development Act), 2016

The introduction of the RERA Act was a game changer for the Indian real estate sector. It aimed to bring transparency, accountability, and fairness to the real estate market.

Key Highlights:

Mandatory registration of projects and real estate agents.

Timely project delivery with penalties for delays.

Buyer protection and grievance redressal mechanisms.

Full disclosure of project details and financials.

Impact:
RERA has boosted buyer confidence and curbed the practices of fraudulent developers. It has made the sector more organized and investor-friendly.

2. Goods and Services Tax (GST)

Before GST, the real estate sector was taxed under multiple indirect taxes like VAT, service tax, and excise duty. GST replaced them with a single tax regime.

GST Rates:

1% for affordable housing.

5% for non-affordable housing (without Input Tax Credit).

Impact:
While GST simplified the tax structure, developers lost out on input tax credits, leading to increased costs. However, the clarity in taxation has been welcomed by homebuyers and developers alike.

3. Benami Transactions (Prohibition) Act, 1988 – Amended in 2016

This law aims to prohibit and restrict benami (proxy) transactions in real estate. It ensures that properties are bought and sold only in the name of the real buyer.

Impact:
The act has helped curb black money in real estate transactions and promoted clean and legal property dealings.

4. Pradhan Mantri Awas Yojana (PMAY)

Launched in 2015, PMAY aims to provide “Housing for All” by 2022. It promotes affordable housing through credit-linked subsidies and incentives to developers.

Features:

Subsidized home loans for low and middle-income groups.

Tax benefits for developers constructing affordable housing.

Interest subsidy of up to ₹2.67 lakhs for eligible homebuyers.

Impact:
PMAY has boosted the affordable housing segment and empowered first-time homebuyers in urban and rural areas.

5. FEMA and FDI Policies

The Foreign Exchange Management Act (FEMA) and related FDI norms govern foreign investments in Indian real estate.

Current Rules:

100% FDI is allowed in townships, housing, built-up infrastructure, and construction development projects.

Certain conditions related to minimum capital and lock-in periods apply.

Impact:
These liberalized norms have attracted significant foreign investments into Indian real estate, especially in commercial and warehousing sectors.

6. Budget Announcements and Tax Reforms

The Union Budgets over the years have introduced several tax-related changes that influence the real estate market.

Recent Measures:

Increase in deduction limit on home loan interest under Section 24.

Extension of tax holiday for affordable housing developers.

Reduction in capital gains holding period for REITs and InvITs.

Impact:
Such fiscal measures aim to promote home ownership, ease financial burdens, and stimulate investments in the sector.

7. Model Tenancy Act, 2021

The government introduced the Model Tenancy Act to regulate rental housing and make it more attractive to both landlords and tenants.

Features:

Standardized rental agreements.

Fast-track dispute resolution.

Transparent rent control mechanisms.

Impact:
This act is expected to unlock vacant homes, encourage rental housing, and promote a healthier rental market in India.

8. Digitization of Land Records

Initiatives like Digital India Land Records Modernization Programme (DILRMP) aim to digitize land records and make them easily accessible.

Impact:
This brings greater transparency, reduces disputes, and improves the ease of doing property transactions.

Conclusion

The Indian real estate sector is undergoing a transformative phase, largely driven by government reforms and policies. Whether it’s ensuring transparency through RERA, boosting affordability with PMAY, or attracting global investors via FDI, these initiatives are creating a more structured and trustworthy real estate environment.

As these policies continue to evolve, they are expected to bring long-term stability, encourage innovation, and open new growth opportunities across residential, commercial, and industrial segments.