Policy and Property: How Government Decisions Drive Real Estate Growth

Whether you’re a homebuyer, investor, developer, or agent, understanding how policies shape the sector is essential. In this article, we explore the key ways government policies affect real estate growth and how you can stay informed to make better property decisions.

1. Affordable Housing and Housing Schemes

Governments across the world, including India, introduce housing schemes to encourage homeownership among lower and middle-income groups. These initiatives increase the buyer base and stimulate demand.

Key Examples:

• Pradhan Mantri Awas Yojana (PMAY): A flagship mission aiming to provide “Housing for All” by offering subsidies on home loans for economically weaker sections (EWS), low-income groups (LIG), and middle-income groups (MIG).

• Credit Linked Subsidy Scheme (CLSS): Offers interest rate subsidies for first-time buyers, making homes more affordable.

These programs lead to an uptick in residential property demand, especially in Tier-II and Tier-III cities.

2. Regulatory Reforms: RERA and Transparency

One of the biggest policy interventions in India’s real estate landscape was the introduction of the Real Estate (Regulation and Development) Act, 2016, better known as RERA.

Impacts:

• Developers must register their projects and disclose details such as timelines and approvals.

• Buyers are protected from delays, fraud, and misleading advertising.

• Investors gain more confidence, boosting real estate activity.

Transparency builds trust, and trust leads to sustained market growth.

3. Taxation Policies and Incentives

Government tax policies can either boost or discourage real estate investments. Here are some tax-related decisions that affect the sector:

Positive Impacts:

• Tax deductions on home loan interest and principal under Section 80C and 24(b) of the Income Tax Act.

• GST rate reduction for under-construction homes (currently 5% for regular units, 1% for affordable housing) has made new projects more attractive.

• Capital gains tax exemptions under certain conditions encourage long-term property holding and reinvestment.

These tax benefits drive individual ownership and real estate investment alike.

4. Foreign Direct Investment (FDI) Norms

The government has relaxed FDI rules in the real estate sector, especially in construction and development. Key reforms include:

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

• Reducing the minimum lock-in period and area requirements for foreign investors.

This has brought global capital into Indian real estate, resulting in better quality construction, more organized players, and stronger competition.

5. Smart City and Urban Renewal Missions

Programs like the Smart Cities Mission and AMRUT (Atal Mission for Rejuvenation and Urban Transformation) aim to create modern infrastructure and urban sustainability.

Their impact on real estate:

• Increases demand in selected smart cities due to improved connectivity, governance, and livability.

• Boosts property prices as cities receive funding and planning upgrades.

• Encourages technology-driven property development, including green buildings and digital services.

These long-term initiatives reshape urban landscapes, attracting homebuyers and investors.

6. Land Acquisition and Zoning Regulations

Land is the most crucial raw material in real estate. Government land acquisition policies and zoning laws determine what type of development can occur, and where.

Changes in land use classification (e.g., agricultural to residential) can cause a spike in land prices. Similarly, easier land acquisition rules accelerate development timelines, while delays or restrictions can halt growth.

In states like Maharashtra and Tamil Nadu, simplification of land conversion processes has accelerated housing and commercial projects in suburban zones.

7. Infrastructure Budget and Public Investment

Each year, the Union Budget provides signals to real estate developers and investors. Increased government allocation for highways, railways, metros, and urban development projects creates new real estate corridors.

For example:

• The Mumbai Metro expansion and coastal road project have increased property demand in peripheral locations like Dahisar and Kandivali.

• The Delhi-Mumbai Industrial Corridor (DMIC) has opened up prospects in areas like Neemrana and Dholera.

Government infrastructure investment acts as a catalyst for real estate appreciation.

8. Rent Control and Tenancy Acts

New tenancy laws such as the Model Tenancy Act seek to create a balanced relationship between landlords and tenants. By providing a legal framework for rental agreements and dispute resolution, these policies:

• Encourage more people to rent out properties, unlocking vacant housing stock.

• Attract real estate investors looking for rental income.

• Create a healthier rental ecosystem in urban centers.

A regulated but investor-friendly rental market ultimately supports affordable urban housing.

9. Environmental and Sustainability Regulations

Green norms like Environmental Clearance (EC), Energy Conservation Building Code (ECBC), and National Building Code (NBC) enforce sustainable construction.

While they may increase compliance costs in the short term, they:

• Promote eco-friendly and energy-efficient construction

• Improve building quality

• Appeal to environmentally conscious buyers

Policies that prioritize sustainability lead to long-term resilience and reputation gains for real estate developers.

10. Demonetization and Real Estate Formalization

The 2016 demonetization move disrupted the real estate sector, especially secondary markets dependent on cash transactions. However, it also ushered in greater transparency, digitization, and formalization.

Combined with RERA and GST, the sector is now more organized and traceable—fostering trust and compliance among both buyers and developers.

Conclusion

Government policies are the invisible hand guiding the visible real estate market. From housing subsidies and transparency regulations to tax reforms and infrastructure budgets, every government decision influences buyer sentiment, developer behavior, and market dynamics.

To navigate this evolving landscape, buyers and investors must stay updated on policy changes and understand their long-term impact. A proactive approach to government reforms can help you make smarter, more profitable property decisions.

This article is brought to you by Hexahome, your dependable real estate partner, and Hexadecimal Software, the technology leader behind real estate innovation, providing smart tools, analytics, and platforms for transparent and intelligent property management.