Whalesbook
1. THE SEAMLESS LINK
This budget presents a dual narrative for India's real estate sector: a robust push for infrastructure development contrasted sharply with a perceived neglect of the affordable housing segment. While industry players acknowledge the long-term benefits of increased public capital expenditure and enhanced connectivity, the absence of specific incentives for affordable housing has tempered enthusiasm, raising fears of reduced supply and increased housing costs for a significant portion of the population.
Infrastructure Surge Fuels Eastern Ambitions
The Union Budget's commitment to infrastructure-led growth, highlighted by a capital expenditure outlay of ₹12.2 lakh crore for FY27, has been broadly welcomed. Developers, including CREDAI West Bengal president Sushil Mohta, noted that investments in highways, Metro rail, logistics corridors, and urban infrastructure are crucial for improving connectivity and unlocking new growth corridors, particularly in eastern India and smaller cities [10]. Harshavardhan Neotia of Ambuja Neotia Group pointed out that the 8.9% increase in capital expenditure sustains momentum for large-scale development, creating opportunities across the construction value chain [10]. This focus on Tier-2 and Tier-3 cities is seen as a significant growth frontier. Furthermore, initiatives like dedicated REITs for CPSE asset monetization and the Infrastructure Risk Guarantee Fund are expected to de-risk capital deployment and attract institutional investors, signaling a more stable environment for development [10]. The Indian real estate sector has already seen strong capital market activity, raising ₹17,867 crore in FY26 YTD, with REITs being major beneficiaries [3]. The Nifty Realty index, as of February 1, 2026, shows a Price-to-Earnings (P/E) ratio of 35.7x and a market capitalization of ₹5.43 lakh crore, with a 5-year CAGR of 20.7% [25], indicating underlying investor interest in the broader sector despite specific concerns.
Affordable Housing's Unaddressed Crisis
Despite the infrastructure focus, a significant sentiment of disappointment surrounds the lack of specific attention to affordable housing. Sushil Mohta described the neglect of this segment as a "serious concern," noting that long-standing demands to revise outdated price and area caps have been ignored [10]. With escalating land and construction costs, developers warn that the affordable housing segment, which currently constitutes about 18% of the total supply, risks shrinking to approximately 12% [6, 10, 19]. Anuj Puri, Chairman of ANAROCK Group, highlights that affordable housing's share has already fallen from over 38% in 2019 to 18% in 2025, indicating a structural crisis rather than a cyclical downturn [27]. This potential decline in supply could lead to increased rentals, longer commuting distances, and a rise in informal housing arrangements. Developers also noted the absence of relief on GST rationalization, input tax credit, or income tax benefits on home loans, issues that would have directly supported affordability [10]. The budget's focus on economic infrastructure, rather than welfare, means that a sustained reduction in affordable housing supply could exacerbate urban housing shortages, projected to reach 30 million units by 2030 without intervention [27].
Capital Markets and REITs: Unlocking Value
The budget's emphasis on financial instruments like REITs (Real Estate Investment Trusts) and InVITs (Infrastructure Investment Trusts) is seen as a positive step towards unlocking capital and fostering long-term growth. The proposal to accelerate the monetization of Central Public Sector Enterprises' (CPSEs) real estate assets through dedicated REITs is expected to free up capital and attract institutional investors [5, 9, 11, 12]. These instruments allow investment in large-scale, income-generating properties and infrastructure projects, offering investors a share in rental income and tolls without direct ownership [10]. With five listed REITs in India already managing assets worth over ₹2.3 trillion [9], this strategy aims to deepen capital markets and provide liquidity. This continued focus on REITs and InVITs reinforces their role as mainstream investment vehicles, potentially increasing transparency and investor confidence across the real estate and infrastructure ecosystem [12].
Sector Outlook & Valuation
From a macroeconomic perspective, the sustained push towards infrastructure creation and balanced regional growth is expected to indirectly support real estate demand over the medium to long term, as noted by Merlin Group MD Saket Mohta [10]. The focus on Tier-2 and Tier-3 cities, with ₹5,000 crore allocated per City Economic Region, signals a long-term strategy for urban transformation and growth, particularly beneficial for eastern India [10]. While housing affordability is at its best levels in three decades due to stable home loan rates and rising incomes [3], the shrinking affordable housing segment presents a significant challenge. The Nifty Realty index's P/E of 35.7x suggests a market that is valued, but the sector's historical 5-year CAGR of 20.7% indicates strong growth potential, contingent on addressing the affordable housing deficit and leveraging infrastructure development [25].