Real Estate and Infrastructure

How Technology and Policy can shape strong Real Estate and Infrastructure foundations

India's real estate and infrastructure sector to grow with tech, reforms, and focus on Tier I & II cities.


Neetu Vinayek, Partner and Tax Leader – Infrastructure at EY India, is the author of the article.

In brief

  • Emerging technologies like AI-driven building management, IoT, and GNSS toll systems expected to transform the sector
  • Focus on Tier I and II cities, coastal shipping infrastructure, and affordable housing for growth.
  • Real estate and infrastructure are poised for 13-15% annual growth, driven by policy initiatives, technological advancements, and sustainable practices.

India’s real estate market witnessed a surge in investments, driven by redevelopment projects, luxury and premium residential properties, and commercial real estate spaces. Continued focus on public infrastructure development, including railways, roadways, and multimodal hubs, has enhanced connectivity, reduced transportation costs, and cut travel times. Real estate technology advancements are shaping the sector, enabling efficiency and innovation.

REITs and InvITs continue to attract investment, assisting in asset monetization and unlocking investor value. Positive developments, such as reducing the holding period for REIT/InvIT units for LTCG tax, are set to improve IRR and generate liquidity for real estate businesses. However, the sector faces challenges, including low private sector participation due to limited funding. The Union Budget FY 2024-25 allocated only INR 500 crores, necessitating more budgetary allocation, including viability gap funding, to attract private investment.

How was 2024 for the Indian real estate sector?

Focus on Last-Mile Connectivity:

In 2024, 228 projects worth INR 15.88 lakh crores were approved under Gatishakti. This integrated network of railways, roads, and other transport modes is set to significantly impact real estate businesses and infrastructure in the future of real estate development.

Investments Becoming Attractive:

The announcement of SM REIT in May 2024 gained traction, and Fractional Ownership Platforms expressed interest in transitioning to this structure. With investments becoming more secure, real estate businesses are poised for growth. Lowering the minimum investment thresholds to regular REIT levels (i.e., INR 10,000-15,000) could drive wider participation and attract more investors to the commercial real estate segment.

Challenges with High Interest Rates and Tax Structures:

Borrowing norms and high interest rates impact long-term infrastructure projects. Additionally, affordable housing tax policies require reform. GST on leasing limits input tax credit for development costs, increasing overall costs. Transferrable Development Rights (TDRs) are taxed under GST, despite their inherent link to immovable properties, creating additional hurdles.

Outlook for 2025

Technology Advancements Driving Growth:

The future of real estate is intertwined with tech innovation. Building Management Systems are expected to incorporate Gen-AI technologies, while IoT and home automation are reshaping customer experiences in residential properties. In infrastructure, the adoption of Global Navigation Satellite Systems (GNSS) and Automatic Number Plate Recognition (ANPR) for toll collection will streamline processes. Investments in data centers, driven by local data storage policies, will also boost real estate technology.

Regulatory Enhancements:

Early adoption of the VCC framework could make Indian real estate competitive globally. The DESH legislation is anticipated to provide tax benefits, including concessional corporate tax rates of 15% for greenfield and brownfield units, further driving growth in the sector.

Expanding Focus on Tier I and II Cities:

Indian real estate businesses are increasingly targeting redevelopment projects in Tier I and II cities, which offer immense growth opportunities. These cities will play a key role in shaping the future of real estate.

Aviation and Tourism Opportunities:

Growth in aviation is expected to boost Maintenance, Repair, and Overhaul (MRO) services, along with cruise tourism, supported by port development initiatives. These sectors could also impact commercial real estate dynamics.

Shipping and Coastal Opportunities:

Coastal shipping, a cost-effective alternative, is gaining traction. Increased trade volumes call for self-reliance in container manufacturing. Shipbuilding and container production could benefit from incentives and infrastructure status for the sector.

Affordable Housing Tax Reforms:

Investment-linked capex deductions currently focus on slum redevelopment and affordable housing projects, which have limited investment requirements. Reintroducing tax holidays and increasing budgetary support for affordable housing tax initiatives would significantly bolster the sector.

REIT Taxation Simplifications:

Hybrid taxation for REITs complicates investments. Ensuring pass-through taxation for all income, including capital gains, would encourage investor participation.

Indian real estate, underpinned by technology advancements, is poised to grow at 13-15% over the next five years, outpacing many other sectors. By 2047, it is projected to reach $4.8 trillion, contributing 18% of GDP. Collaboration with technology innovation will drive sustainable development, lower costs, and enhance infrastructure quality while improving customer experiences across residential properties and commercial real estate ventures.

Summary

In 2025, India’s real estate and infrastructure sector is poised for transformation, driven by emerging technologies like AI-powered Building Management Systems, IoT, and GNSS-based toll systems, enhancing efficiency and customer experience. Regulatory reforms, such as the anticipated VCC framework and DESH legislation, could boost competitiveness and attract investments. Tier I and II cities are expected to emerge as key redevelopment hubs, while coastal shipping and aviation sectors offer significant growth potential. Budgetary support for affordable housing and REIT taxation reforms could address funding challenges, setting the stage for sustainable growth and aligning with India’s long-term development goals.

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