Budget 2026: What real estate developers are expecting as tier-II cities take centre stage

The Indian real estate sector is poised for a significant transformation, with a strategic pivot towards Tier-II cities and the premium housing segment as Budget 2026 approaches. This shift reflects a maturing market, evolving consumer preferences, and the government's sustained focus on infrastructure development and regional growth.

**Background Context and the Genesis of the Shift:**

Historically, India's real estate growth has been largely concentrated in Tier-I metropolitan areas like Mumbai, Delhi-NCR, Bengaluru, and Hyderabad. These cities attracted massive investment due to their robust job markets, established infrastructure, and higher disposable incomes. However, this concentration led to several challenges: soaring property prices, saturation, infrastructure bottlenecks, and severe urban congestion. The COVID-19 pandemic further accelerated a re-evaluation of living spaces, with the rise of remote work prompting many to seek larger, more affordable homes in less crowded environments. Concurrently, government initiatives aimed at balanced regional development, such as the Smart Cities Mission (launched 2015) and the Pradhan Mantri Awas Yojana (PMAY, launched 2015), started laying the groundwork for growth beyond the metros. Improved connectivity through national highways, dedicated freight corridors, and regional rapid transit systems (RRTS) has also made Tier-II cities more accessible and attractive.

**What's Happening: A Dual Focus for Budget 2026:**

The real estate industry's expectations from Budget 2026 highlight a dual strategy. Firstly, there's a strong emphasis on Tier-II cities, which are now seen as the next engines of growth. These cities offer lower land acquisition costs, a growing middle class, and significant potential for infrastructure upgrades. Locations like Sonipat, mentioned in the article, exemplify this trend, benefiting from proximity to major metros and planned infrastructure projects. Secondly, the premium housing segment is also gaining traction. This segment caters to a demographic with higher disposable incomes, seeking luxury amenities, larger spaces, and often sustainable living solutions. Developers are specifically looking for policy support and tax incentives that can stimulate demand, enhance affordability, attract both domestic and foreign investment, and encourage Environment, Social, and Governance (ESG)-aligned practices in construction.

**Key Stakeholders and Their Roles:**

Several key stakeholders are central to this evolving landscape. **Real estate developers** are the primary drivers of supply and investment, directly influencing market dynamics. **Homebuyers and investors** represent the demand side, their preferences and purchasing power shaping market trends. The **Central Government** plays a crucial role through fiscal policy (Budget), infrastructure spending (e.g., National Infrastructure Pipeline, PM Gati Shakti), and regulatory frameworks (e.g., RERA). **State Governments and Urban Local Bodies (ULBs)** are vital for land allocation, local infrastructure development, and implementing housing and urban planning policies. **Financial institutions** (banks, HFCs) provide the necessary credit for construction and home loans. Finally, **urban planners and civil society organizations** contribute to sustainable development and advocacy for equitable housing.

**Significance for India:**

This shift holds profound significance for India's economic and social fabric. Economically, the real estate sector is a major contributor to GDP and a significant employer (directly and indirectly) of both skilled and unskilled labor. Growth in Tier-II cities can lead to more balanced regional development, reducing the strain on already overburdened metros and fostering economic activity in new hubs. It can also enhance affordability for a wider segment of the population, aligning with the PMAY's objective of 'Housing for All'. Infrastructure-led growth is a cornerstone of this strategy, driving investment in roads, railways, airports, and civic amenities, which in turn boosts overall economic productivity. Socially, it can lead to improved living standards, better access to services, and reduced migration pressures on Tier-I cities.

**Constitutional and Policy Framework:**

The government's vision for urban development and housing is underpinned by various constitutional provisions and legislative acts. The **74th Constitutional Amendment Act, 1992**, empowered Urban Local Bodies (ULBs) with responsibilities for urban planning, regulation of land use, and provision of amenities. **Entry 18 of the State List** under the Seventh Schedule gives states jurisdiction over land, making state policies crucial for real estate. The **Real Estate (Regulation and Development) Act, 2016 (RERA)**, a landmark legislation, brought much-needed transparency and accountability to the sector, protecting homebuyers' interests. Policies like the **Pradhan Mantri Awas Yojana (PMAY)** aim to address housing shortages, particularly for the economically weaker sections and low-income groups. The **Smart Cities Mission** and **AMRUT (Atal Mission for Rejuvenation and Urban Transformation)** focus on improving urban infrastructure and services. From a fiscal perspective, the **Income Tax Act** offers various deductions on home loan interest (Section 24(b)) and principal repayment (Section 80C), while **GST** on construction services and stamp duty (a state subject) are key revenue and cost components. The push for ESG-aligned incentives also connects to India's broader commitment to climate action and sustainable development goals.

**Future Implications:**

The focus on Tier-II cities and premium housing suggests a future where urban growth is more distributed and diverse. This could lead to the emergence of new economic corridors, fostering local entrepreneurship and employment. However, it also presents challenges: ensuring adequate infrastructure development keeps pace with rapid urbanization, managing environmental impact, and preventing speculative price bubbles. The emphasis on ESG-aligned incentives indicates a future where sustainable construction practices become standard, driven by both policy and market demand. Budget 2026 will be instrumental in setting the tone for these developments, potentially unlocking significant investment and shaping the trajectory of India's urban landscape for decades to come.