Whalesbook
India's Affordable Housing: A Dream Nearing Reality, Budget 2026 Key
India stands at a crucial juncture in its quest for affordable housing. Conditions are ripening for more Indians to enter the housing market, driven by lower home loan interest rates, steady income growth, and government initiatives. However, significant hurdles remain.
The Core Issue
The path to truly affordable homes is obstructed by stalled projects, escalating input costs, and narrow policy definitions. Housing finance companies and real estate developers are pressing the government to implement decisive measures in the upcoming Union Budget 2026-27 to maintain this positive momentum, particularly within the affordable housing segment.
Financial Implications
Developers are urging for the reinstatement of fiscal and regulatory incentives, similar to those provided under the first phase of the Pradhan Mantri Awas Yojana (PMAY 1.0). This included a four-year tax holiday on profits from approved affordable housing projects. The absence of such incentives makes it economically unviable for developers to undertake affordable housing projects, pushing them towards mid- and high-income housing segments where margins are more predictable.
Rising costs of land, cement, steel, and labour, coupled with tighter financing conditions, have severely squeezed developer margins. Delays in project approvals further exacerbate these economic challenges. Consequently, a large segment of potential homebuyers is being priced out of the affordable housing market, as project costs have surged while incomes have largely remained stagnant.
Calls for Policy Revision
The Confederation of Real Estate Developers’ Associations of India (CREDAI) has highlighted the need to revisit the definition of affordable housing. They argue that the current price cap of ₹45 lakh, set in 2017, is outdated and unrealistic. CREDAI proposes either scrapping this cap or increasing it to ₹90 lakh. This revision would also benefit homebuyers, as affordable homes attract a lower Goods and Services Tax (GST) of just 1%. CREDAI also advocates for specific tax incentives for real estate companies engaged in affordable housing development.
Market Trends and Outlook
City-level affordability, measured by the EMI-to-income ratio, shows mixed but generally improving trends. Ahmedabad leads as the most affordable market with an 18% ratio, followed by Pune and Kolkata at 22%. Even Mumbai has seen its ratio drop below 50% for the first time. Knight Frank India attributes this improvement to income growth outpacing price increases and declining interest rates.
Despite these positive signs, residential sales in the top seven cities saw a 14% decline in 2025, according to Anarock. Factors cited include hardening property prices, IT sector layoffs, and global uncertainties. Nevertheless, the overall value of sales rose 6%, indicating continued demand for premium housing. New launches show an increasing share of high-end properties.
The sector's performance in 2026 is expected to hinge on factors like potential interest rate cuts by the Reserve Bank of India (RBI) and developers’ ability to manage prices.
Government Interventions
The government has continued its efforts through schemes like PMAY-Urban (PMAY-U). A total of 1.11 crore houses have been sanctioned under PMAY-U and its subsequent phase, with 95.54 lakh completed. The Finance Minister also allocated ₹15,000 crore through the second tranche of the Special Window for Affordable and Mid-Income Housing (SWAMIH) fund to complete stalled projects, aiming to deliver 100,000 units. To date, 50,000 units in stressed projects have been completed under SWAMIH.
Impact
- This news significantly impacts the Indian real estate sector, directly affecting developers, housing finance companies, construction material suppliers, and homebuyers. A supportive Union Budget could boost construction activity, improve affordability, and stimulate economic growth. Conversely, inaction could lead to a slowdown in the affordable housing segment.
- Impact Rating: 8/10.
Difficult Terms Explained
- Housing Finance Companies (HFCs): Financial institutions that provide loans specifically for the purchase or construction of housing.
- Real Estate Developers: Companies that plan, finance, and manage the construction of buildings or projects for sale or lease.
- Union Budget: The annual financial statement presented by the Finance Minister of India, outlining government revenue and expenditure for the upcoming fiscal year.
- Pradhan Mantri Awas Yojana (PMAY): A government scheme aimed at providing affordable housing to all eligible urban and rural poor. PMAY 1.0 refers to its initial phase, and PMAY 2.0 to subsequent phases.
- Tax Holiday: A period during which a business or project is exempt from paying certain taxes, encouraging investment.
- Floor Space Index (FSI): The ratio of a building's total floor area to the size of the land on which it is built, essentially dictating how much construction is allowed.
- Economically Weaker Section (EWS): Households with very low incomes, as defined by government criteria.
- Low-Income Group (LIG): Households with incomes above EWS but still considered low, as defined by government criteria.
- Goods and Services Tax (GST): A consumption tax levied on the supply of goods and services in India. Affordable housing typically attracts a lower GST rate.
- EMI (Equated Monthly Installment): A fixed amount paid by a borrower to a lender at a specified date each calendar month, typically paid on a mortgage loan.
- EMI-to-income ratio: The percentage of a household's income that is spent on monthly mortgage payments. A lower ratio indicates better affordability.
- Special Window for Affordable and Mid-Income Housing (SWAMIH): A government-backed fund to provide last-mile funding to stalled affordable and mid-income housing projects.