Whalesbook
The Growing Affordability Gap
India's urban housing market is experiencing a significant affordability challenge, particularly for the middle-income segment. The current definition of 'affordable housing,' with a price cap of ₹45 lakh and size limits typically between 60-90 square meters, established around 2017, is no longer reflective of escalating land prices, construction costs, and inflation in major metropolitan areas. Many modest urban homes now exceed these thresholds, making them ineligible for targeted government incentives. This disconnect has led to a substantial shortfall in affordable housing supply, with estimates suggesting a deficit of around 9.4 million units in cities, potentially rising to 30 million by 2030 without policy intervention. Consequently, the homeownership dream is becoming increasingly elusive for the average Indian family, with EMI-to-income ratios rising beyond sustainable levels. The market is also showing a structural imbalance, with luxury housing sales growing while affordable segment launches have contracted.
Enhancing Homebuyer Support
To address the affordability strain, industry stakeholders are advocating for enhanced support for homebuyers, especially first-time buyers and the middle-income group. A primary demand is a substantial increase in the home loan interest deduction under Section 24(b), from the current ₹2 lakh annual limit to ₹5 lakh, which could significantly improve monthly cash flows for salaried individuals. There is also a strong push for the reintroduction of Section 80EEA, a provision that offered an additional tax deduction for first-time homebuyers, aiming to encourage this cohort to enter the market. Furthermore, strengthening and expanding the Pradhan Mantri Awas Yojana – Urban (PMAY-U) and its Credit-Linked Subsidy Scheme (CLSS) is seen as crucial. Proposals include increasing interest subsidies for low- and middle-income groups to directly reduce borrowing costs and ease repayment stress over the loan's tenure.
Stimulating Supply and Reducing Costs
On the supply side, critical policy reforms are proposed to make housing projects more viable. A key expectation is the revision of the 'affordable housing' price cap to better reflect current market realities. While the current ₹45 lakh limit is widely considered outdated, proposals range from ₹75-85 lakh for major metros like Delhi-NCR, Bengaluru, and Pune, and up to ₹95 lakh for Mumbai, with recommendations for city-specific differentiation while maintaining size norms. Reviving the 100% tax holiday for developers under Section 80-IBA, which expired in 2021, is also a significant demand. This incentive was instrumental in encouraging developers to focus on volume-driven affordable housing projects. Additionally, rationalizing the Goods and Services Tax (GST) on construction materials and under-construction properties is proposed to lower acquisition costs for buyers and improve project viability for developers.
Economic and Employment Implications
The real estate sector is a vital contributor to India's economy, generating substantial employment and driving growth in numerous ancillary industries. By addressing the current housing affordability challenges, policy reforms ahead of Budget 2026 have the potential to unlock pent-up demand, boost construction-led employment, and reaffirm homeownership as an attainable goal for a broader segment of India's urban population. A balanced housing market is essential for sustainable and inclusive growth, impacting millions of lives and contributing to the nation's overall economic development.