How Budget 2026 Can Revive Affordable Housing
Anuj Puri, Chairman – ANAROCK Group
India is at a perplexing point in its housing history. While headlines
trump up record sales of luxury homes and rising real estate prices, a much
darker story is unfolding behind the scenes. We are now looking at very real
possibility of a two-tiered housing market that makes owning impossible for
millions of Indians.
This is no time for half-measures. Budget 2026 needs to take strong
action to fix India's housing market, else the gap between those who can afford
luxury penthouses and those who struggle to find basic homes they can afford
will only widen.
The Market Paradox - An Illusion of Growth
On the surface, it seems that India's residential real estate market is
doing relatively well. The total value of homes sold in 2025 was about INR 6
lakh crores - a very meaningful 6% increase over 2024, according to ANAROCK
Research. In 2024, institutional investments into real estate also hit USD 8.9
billion, rising by 51% over the previous year. But these headlines camouflage a
more worrisome reality.
While the total sales value certainly rose, the number of homes sold
reduced by 14% in 2025. The market now clearly favours the rich. In 2024, there
was a massive 170% increase in luxury homes sales to HNIs, NRIs, and other
wealthy professionals scouting for status symbols inflation hedges.
Meanwhile, affordable housing - the most critical bellwether of
inclusive economic growth, was in shambles.
Structural Challenges
The affordable housing market went from a market share of 38% in 2019 to
just 18% in 2025, finds ANAROCK Research data. Far from being a cyclical
downturn that improves in tandem with market revival, it is a structural crisis
that needs urgent attention.
In 2018, over 52% of new homes in India's top 7 cities were priced under
INR 50 lakh. By 2025, that number is at a lamentable 17%. In the metros, only
17% of new homes are now fall within the INR 50 lakhs price bracket. This drop
in affordable housing supply has resulted in a humungous urban housing shortage
in cities, with a shortfall of 9.4 million homes. The number may well rise to
30 million units by 2030 without policy intervention.
For regular Indians, the effects are profound. Budget-strung families
are finding the cost of housing too much to handle. The ratio of equated
monthly instalments (EMIs) to income has gone up from 43% in 2020 to 60% today,
which is well above the sustainable level. Middle-income families'
EMI-to-income ratio has gone up from 28% to 40% during the same time since home
prices as well as interest rates have risen.
ANAROCK's most recent Consumer Sentiment Survey found that in Bengaluru,
one of India's most dynamic cities, 42% of people who wanted to buy a property
for less than INR 1 crore can no longer afford it. This is even though demand
for budget housing has grown by 13% year-on-year.
Brutal economics, not choice, keep buyers from being able to buy homes
they desire, as the market just cannot 'accommodate' them at prices they can
afford.
Why Developers Are Shying Away from Affordable Housing
These challenges are not driven by a lack of demand but by the economics
of modern real estate development. Affordable housing offers developers margins
of only 10-12%, while luxury projects deliver 25-30% or higher. The maths is
clear when you consider the rising cost of land and construction, and execution
challenges. The profit margins have migrated entirely upward.
The cost of land in cities has risen astronomically and construction
input costs for steel, cement, and skilled labour remain elevated. Complex
government approval processes create further delays and uncertainty. In this
situation, a project with 12% margins is simply not viable if luxury projects
in the same city offer 30% margins.
The inevitable result - many second-tier developers have rebranded
mid-income projects as premium offerings and reduced their affordable housing
launches in a quest for higher-ticket deals.
The current policy framework, designed a decade ago, no longer reflects
market realities. The price cap for 'affordable housing' remains stuck at INR
45 lakh — a threshold set in 2017 that bears no relation to 2025 construction
costs and land prices. In Mumbai, a 600-square-foot apartment in peripheral
areas now costs between INR 60-75 lakh.
In Pune, similar units command INR 50-65 lakh. In Bengaluru and
Delhi-NCR, the figures are equally disconnected from policy definitions.
Developers who attempt to build within this 45-lakh price cap are locked
out of critical tax benefits. The tax holiday under Section 80-IBA, which once
spurred affordable housing launches, expired in 2021 and has not been revived.
Without these incentives, profitability becomes mathematically impossible.
Projects simply do not launch, supply remains suppressed, and prices continue
to rise.
Infrastructure is Key
While policies have become redundant, infrastructure has seen constant
upgrades. The completion or announcement of major infrastructure projects in
India, such as metros, motorways, ring roads, airports, and logistics
corridors, always precede a major real estate revival - or even boom.
Infrastructure is about a lot more than easier commutes - it opens
up new areas for development, provides the basis for new workplace
ecosystems, boosts land values, and finally results in sustainable housing
demand. Improved connectivity automatically attracts developers, revs up
project launches, and boosts housing demand.
We have seen this pattern play out repeatedly in cities like Bengaluru,
Hyderabad, NCR and Pune. Whenever a new metro line or highway is
announced, new residential development surges in the connected locations.
What Budget 20206-2027 Can Do
Budget 2026 must sharply accelerate last-mile urban infrastructure. The
National Infrastructure Pipeline and PM Gati Shakti initiatives' most recent
announcements are very positive, but the pace of implementation is still not
fast enough. Metro expansions, suburban rail networks, ring roads that connect
outlying areas, and integrated logistics corridors should be given priority for
immediate funding.
Such investments will have a big impact on the supply of housing, its
affordability, and inclusive market growth.
- Tax
Holiday - Revive Affordable Housing Supply with Section 80-IBA
The most direct and immediate tool the government has at its disposal is
to bring back the 100% tax holiday for developers of affordable housing under
Section 80-IBA. This incentive, which expired in 2021, was very effective at
getting more developers on board to launch more affordable housing projects.
When Section 80-IBA was active (2016-2021), it played a critical
catalytic role. Developers could undertake affordable housing projects with
reasonable profit expectations, knowing that tax benefits would bridge the
margin gap between affordable and mid-income projects.
The multiplier effect was evident: affordable housing supply
accelerated, developer participation broadened, and a significant portion of
new launches served the mass market.
The cost to government of reintroducing this tax holiday must be weighed
against the cost of inaction. Each year without affordable housing supply
represents approximately 1.5 million additional households that cannot
transition to formal ownership. The social costs—financial exclusion, continued
slum growth, regional inequality—are substantial and compounding.
A limited-period tax holiday for Section 80-IBA projects approved within
a defined window (say, 24-36 months) would be a high-impact, fiscally
defensible intervention.
- Redefine
Affordability to Reflect Urban Ground Realities
The 45-lakh price cap for affordable housing is economically divorced
from urban India's ground realities. These thresholds should be raised
substantially and differentiated by city.
For Mumbai and the Mumbai Metropolitan Region (MMR), the affordable
housing cap needs to be increased to INR 85 lakhs. For other major metro cities
like Delhi-NCR, Bengaluru, Hyderabad, Pune, it should be no less than INR 75
lakhs.
These numbers are not arbitrary but reflect the actual current
construction costs and land prices in these cities. A modest, well-designed
2-bedroom apartment with basic amenities is impossible within the INR 45-lakh
cap in any major metropolitan area.
Critically, this redefinition must retain the size norms and intent of
the original affordable housing mandate. The goal is not to create luxury
loopholes but to ensure that first-time, middle-class homebuyers benefit from
the tax benefits and subsidized financing they urgently need.
A 60-70 square meter apartment in a peripheral zone is fundamentally
different from a premium offering, even if its nominal price has risen to INR
75 lakh.
Raising the price cap to INR 75-85 lakh while keeping the carpet area
norms at 60-90 square meters would increase the number of homes that could be
built from about 18% of current launches to more than 40%. This one policy
change can potentially have the effect of immediately attracting more
developers, and free up a lot of supply that has been held back till now.
- Restart
the Credit-Linked Subsidy Scheme - A Direct Benefit for First-time
Homebuyers
The Credit-Linked Subsidy Scheme (CLSS) was revived and
reintroduced as part of the revamped Pradhan Mantri Awas Yojana – Urban
2.0 (PMAY-U 2.0) in Union Budget 2024, when the FM announced its relaunch with
updated benefits and eligibility criteria.
This is an important policy tool that has been under-utilized in recent
years. Union Budget 2025 brought back part of this plan, which gives interest
subsidies of up to INR 1.80 lakh to eligible beneficiaries in the EWS, LIG, and
some MIG categories.
Budget 2026 needs to widen and strengthen this support. The original
CLSS framework, which was stopped in 2022, was very simple - eligible
homebuyers got direct interest subsidies added to their loan accounts right
away, which lowered their EMIs and made homeownership more affordable.
This subsidy cut interest rates by 6.5% for EWS and LIG borrowers for
loans of up to INR 6 lakhs with tenures up to 20 years. For mid-income home
loan borrowers, subsidies of 3-4% on larger amounts often make the difference
between affordability and unaffordability.
Budget 2026 should widen CLSS in three ways:
- Raise
the subsidy rates a little to keep up with higher current lending rates
- Raise
the loan limits to match the current property prices (INR 8-10 lakh for
EWS/LIG and INR 15-18 lakh for MIG), and
- Simplify
and streamline the application and disbursement process to reduce friction
and ensure that benefits get to the target population seamlessly.
The cost of expanding CLSS would be high, but it would be worth it. Amid
the massive shortfall of affordable housing units, if the CLSS paid out INR
10,000–15,000 crore every year, it would directly help 1.5–2 million first-time
homebuyers over the next five years. This is real, targeted help for the group
that needs it the most.
Union Budget 2026 - A Key Turning Point
On the crossroads that the India housing market currently finds itself,
one path leads to continued bifurcation - luxury apartments for the wealthy,
informal or rental housing for the poor, and a shrinking middle class that
finds it impossible to buy their own homes. The other path leads to balanced
growth that takes everyone along - one where affordable housing supply meets
demand, multiple micro-markets get added infrastructure support, and
homeownership becomes attainable to all levels of society.
It is fair to say that a lot hinges on Union Budget 2026. The policy
levers are clear, time-tested, and workable. The cost to government would
doubtlessly be significant, but the alternatives come with their own steep
costs. Every year of delay means millions of Indian families cannot afford to
buy a home - and inequality grows.
