Amidst overall weakening residential demand and growing gulf between luxury and affordable housing, the FY27 budget assumes great significance. And the big question is – Will it help bridge the housing divide by boosting affordable housing for long-term growth of residential real estate.

Vinod Behl

The great housing divide is quite evident from the 2025 industry statistics. While housing sales across top 7 cities fell by 14%, sales value increased by 6% due to surge in premium and luxury housing sales. Overall, premium (INR 80 lakh- 1.5 crore) and luxury (INR 1.5 crore plus) homes grabbed the largest share of new supply and demand in 2025. 

According to Anarock Research, the share of affordable homes under INR 50 lakh in top cities fell from 52% in 2018 to around 17% in 2025 at the cost of premium and luxury segment gaining dominance. Affordable housing supply too came down significantly from 40% in 2019 to just 12% in H1 2025. The number of affordable homes under INR 1 crore in major cities declined by 36% between 2022 and 2024. The supply to demand ratio for affordable housing fell from a healthy 1.05 in 2019 to 0.36 in 2025, with 60% and 50% decline in country’s two top residential markets of Mumbai and Delhi-NCR respectively. 

How did this situation of sharp skew against affordable housing develop in the residential market? The runaway increase in land cost has been a major cause. Over the past few years, many developers-big and small resorted to land banking, resulting in price escalation. Some small and medium developers, especially from Delhi-NCR resorted to land buying for speculative purposes. They are now offloading these prime land parcels at much higher prices. They have been either outrightly selling land to big branded players or entering into joint development pacts with them, putting their land as equity. What further made the matters worse was surging construction costs in terms of construction material and labour and rising interest rates, escalating EMI to Income ratio from 43% to 60%. This in turn priced out a large number of budget buyers.

In such a scenario, as developers’ margins got significantly squeezed in the affordable housing segment, they shifted to luxury housing in a big way. Industry statistics show that NCR saw over 190% surge in luxury housing supply. This pushed a large number of end-users out of the market and instead encouraged speculative buying with practices like EOI.   

The government’s flip-flop policies on affordable housing under PMAY also precipitated the matters by discontinuing incentives to developers and homebuyers. A 100% income tax waiver to the developers of affordable housing was withdrawn. Tax holiday to homebuyers under Section 80-1BA of IT Act was allowed to expire. There was also a gap in the implementation of Credit Linked Subsidy Scheme (CLSS) under PMAY and in the revised scheme the benefits of interest subsidy on home loans were curtailed. 

In view of all this, the FY 27 budget needs to adopt a multi-pronged approach with direct and indirect policy measures to put an end to demand and supply skew against affordable housing, the main pillar of Modi government’s Housing For All policy. In an indirect measure, the budget should keep the investment momentum for infrastructure development and connectivity for Tier2 and Tier-3 destinations which are emerging as the high growth real estate corridors.  There is an urgent need for reforms related to land, finance and affordable housing including rental housing to bring down home prices, simultaneously easing the situation for developers for boosting supply and homebuyers for boosting demand.

For developers of affordable housing, it can be achieved by providing surplus PSU land at reasonable rates and restoring 100% income tax relief, simplifying and rationalizing GST on building materials and work contracts, lowering borrowing costs, restoring input tax credit and fastracking project approvals. For homebuyers, the scope of CLSS under PMAY should be enlarged to expand the benefits of home loan interest subsidy to first time homebuyers of affordable housing Further, the budget should hike income tax relief on home loan, especially reviving tax holiday under Section 80-1BA of Income Tax Act and offer relief on capital gains tax to encourage home purchases. 

But the moot question is- Will the upcoming budget live up to the expectations of the real estate industry to ensure balanced and sustainable growth of the housing sector ?