Government Policies Affecting Real Estate in India

The Indian real estate sector plays a vital role in the country’s economic growth, contributing significantly to GDP and generating millions of jobs. However, it is also one of the most regulated industries, impacted heavily by government policies. These policies shape how developers operate, how buyers invest, and how the market performs.

In this blog, we explore the major government policies that have influenced the Indian real estate market in recent years and what they mean for homebuyers, investors, and developers.

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

The introduction of RERA was a landmark reform in Indian real estate. Its objective was to bring transparency, accountability, and fairness to the industry.

Key Provisions:

Mandatory registration of real estate projects.

Developers must deliver on promised timelines.

Protection of buyer interests with penalties for project delays.

Disclosure of project details, layout, and funds utilization.

Impact:

Increased buyer confidence.

Cleaner and more organized real estate operations.

Filtered out unprofessional or fraudulent builders.

2. Goods and Services Tax (GST)

The Goods and Services Tax, implemented in 2017, replaced multiple indirect taxes and simplified the tax structure across industries, including real estate.

Current GST Rates on Real Estate:

5% for under-construction properties (without input tax credit).

1% for affordable housing projects.

Impact:

Simplified taxation structure.

Reduced cost inflation from cascading taxes.

However, absence of input tax credit has impacted developer margins.

3. Affordable Housing Policy and PMAY (Pradhan Mantri Awas Yojana)

Launched in 2015, PMAY aims to provide "Housing for All" by 2022 by promoting affordable housing for economically weaker sections and low-income groups.

Key Features:

Interest subsidy on home loans under Credit Linked Subsidy Scheme (CLSS).

Financial incentives for developers building affordable homes.

Faster approvals for affordable housing projects.

Impact:

Boost in demand for affordable homes.

Encouraged developers to enter the affordable segment.

Urban and rural housing growth under the government’s vision.

4. Benami Transactions (Prohibition) Act

To eliminate black money in real estate, the Benami Transactions (Prohibition) Amendment Act, 2016 was enforced strictly.

Key Aspects:

Prohibits purchase of properties in fictitious names.

Properties found to be benami can be confiscated.

Imposes heavy fines and imprisonment.

Impact:

Greater transparency in real estate transactions.

Curb on unaccounted money in property purchases.

5. Insolvency and Bankruptcy Code (IBC)

The IBC, introduced in 2016, offers a structured mechanism for resolving insolvency cases. It allows homebuyers to be treated as financial creditors in insolvency proceedings against developers.

Impact:

Protects homebuyers in stalled or bankrupt projects.

Enables legal recourse and refund mechanisms.

Discourages defaulting by developers.

6. Foreign Direct Investment (FDI) Policy

India has liberalized FDI norms for real estate, particularly in construction and development.

Current Scenario:

100% FDI allowed under automatic route in township and infrastructure projects.

Minimum lock-in periods and size restrictions removed.

Impact:

Increased foreign capital inflow.

Boosted luxury and commercial real estate.

Supported infrastructure development.

7. Model Tenancy Act (2021)

The Model Tenancy Act was introduced to standardize rental agreements and promote rental housing.

Highlights:

Clear rights and obligations for tenants and landlords.

Rent courts for quick dispute resolution.

Encourages institutional investment in rental housing.

Impact:

Formalization of the rental market.

Boost to urban rental housing availability.

More confidence among property owners to lease homes.

8. State-Level Policies and Stamp Duty Reductions

Many state governments have introduced their own reforms and incentives.

Examples:

Maharashtra temporarily reduced stamp duty in 2020-21, boosting sales.

Karnataka and Uttar Pradesh introduced policies to support affordable housing.

Digitization of land records and online property registration in several states.

Impact:

Regional boosts in real estate activity.

Easier property transactions and ownership verification.

More investor-friendly local markets.

Conclusion

Government policies play a crucial role in shaping the Indian real estate sector. From bringing transparency and accountability through RERA to boosting affordable housing under PMAY, each policy has its unique impact.