Housing Stocks Plunge Up to 12% After Disappointing Capital Expenditure Announcement in Union Budget 2025
Housing Stocks: The Indian housing finance sector faced a sharp sell-off on Monday after the Union Budget 2025 failed to meet market expectations regarding capital expenditure in the real estate and housing sector. Investors and industry stakeholders were left disappointed as the government’s allocation for capital expenditure stood at Rs 11.21 lakh crore for FY26, reflecting only a 0.9% increase from the previous year.
Market Reaction to Budget Announcement
Hopes were high that the government would introduce significant incentives to boost the housing sector, particularly in affordable housing. However, the Budget did not include key recommendations, such as raising the house value cap under Pradhan Mantri Awas Yojana (PMAY) from ₹35 lakh to ₹50 lakh in metro cities.
Additionally, analysts had expected a revision in home loan interest deduction limits, which would have provided relief to homebuyers and stimulated demand in the sector. The absence of such measures led to a decline in investor confidence, causing major housing finance stocks to tumble.
Key Housing Stocks That Declined
| Stock Name | Market Capitalization (in crores) | Closing Price (Rs) | Percentage Change (%) |
|---|---|---|---|
| Housing and Urban Development Corporation (HUDCO) | 39,657.64 | 198.10 | -12% |
| Can Fin Homes Ltd. | 8,631.72 | 648.25 | -4% |
| India Shelter Finance Corporation Ltd. | 6,633.95 | 615.80 | -2.49% |
| Coral India Finance and Housing Ltd. | 187.49 | 46.52 | -2.84% |
Impact on the Affordable Housing Sector
Affordable housing finance companies have been a crucial pillar of the Indian real estate ecosystem, catering to the needs of lower and middle-income groups. With interest rates remaining steady and inflationary pressures impacting home affordability, the industry was counting on government support to drive demand. However, the lack of incentives in the Budget has made market participants wary about future growth in the sector.
Experts believe that the muted capital expenditure increase signals slower infrastructure development and fewer incentives for homebuyers, potentially stalling the momentum in the housing sector.
Why Did Investors React Negatively?
- No Increase in Home Loan Interest Deduction
- Market experts were anticipating a rise in the interest deduction limit under Section 24(b) from ₹2 lakh to ₹3.5 lakh, which could have provided relief to homebuyers and improved affordability.
- The absence of this revision means that homebuyers will have to bear the same level of financial burden, leading to reduced enthusiasm in the real estate market.
- Disappointing Capital Expenditure Growth
- The 0.9% increase in capital expenditure allocation was significantly lower than previous years.
- In the past, the government has taken bold steps to boost infrastructure spending, directly benefiting housing and construction sectors. However, this time, the lower allocation raised concerns over slower development and weaker housing demand.
- No Increase in PMAY House Value Cap
- Industry leaders had urged the government to increase the eligibility cap of PMAY from ₹35 lakh to ₹50 lakh in metro cities, making more people eligible for government support.
- The Budget’s failure to address this demand left investors disappointed, as this was expected to drive demand for affordable housing finance.
Future Outlook for the Housing Finance Sector
Despite the negative sentiment surrounding the Budget, analysts believe that long-term demand for housing remains intact due to India’s growing urbanization and rising middle-class aspirations. However, in the short term, housing finance companies may face challenges due to lack of fresh incentives.
The Reserve Bank of India (RBI) continues to play a crucial role in maintaining financial stability within the housing finance sector. With over 91 commercial banks, including 20 public sector banks, the Indian financial system remains robust. Institutions such as NABARD and RBI will continue to drive liquidity and credit flow into the sector.
What Should Investors Do?
Market experts advise caution in the short term, as housing finance stocks may remain under pressure. However, long-term investors can look for buying opportunities in fundamentally strong companies with a sound business model and stable asset quality.
Conclusion
The Union Budget 2025 left housing finance investors disheartened, with key stocks witnessing significant declines. The lack of homebuyer incentives, muted capital expenditure growth, and no revision in home loan interest deductions contributed to the negative sentiment.
While the housing sector remains crucial for India’s economic growth, the short-term outlook appears uncertain. Investors and industry stakeholders now look forward to RBI’s monetary policy decisions and potential government interventions in the coming months to provide the much-needed boost to the housing finance industry.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.