Budget 2025: Can It Revive Affordable Housing?

The real estate sector is standing at a crossroads, post-pandemic the market has seen a growth of the luxury housing segment at the cost of dampening affordable housing. Ahead of Finance Minister Nirmala Sitharam’s budget presentation on 1 February, the homebuyers have one primary ask: Revive the affordable housing segment.

Echoing this sentiment are the players in the real estate industry who are asking the government to focus hard on initiatives that can strengthen this segment which caters to a large base of the homebuyer populace in India.

This year’s budget could hold the key to reversing this trend and ensuring ‘Housing for All’ becomes a tangible reality with some targeted initiatives.

A Sector In Distress

Though the range may vary vis-a-vis current market reality, affordable housing used to be defined as homes priced below Rs 40 lakh and used to be the backbone of India’s residential market. However, its share of sales in top cities has dropped from 38 per cent in 2019 to just 18 per cent in 2024, according to data from ANAROCK Group. The supplies in this segment have also taken a hit, plummeitng from 40 per cent in 2019 to 16 per cent in 2024.

Such a fall is a call for urgent intervention. Anuj Puri, chairman of ANAROCK Group, has emphasised the necessity for targeted benefits to boost both demand and supply. “Affordable housing requires focused attention, he states. “Reducing tax breaks, revising outdated definitions, and releasing centrally controlled land could provide the much-needed push.”

Key Expectations From Budget 2025;

1) Re-introduce Credit-linked Subsidy Scheme (CLSS)

The expiration of the CLSS under the Pradhan Mantri Awar Yojana (PMAY) in 2022 left many first-time buyers in the lurch. Reviving this scheme could incentivise millions of households, enabling them to buy their dream homes or upgrade existing properties. Vijay Harsh Jha, founder of VS Realtors, states that this scheme should also extend to new constructions or essential home improvements.

2) Re-define Affordable Housing

Says Jha, “The Budget 2025 must, firstly, enhance the limit of affordable housing to Rs 1 crore in metro cities so that more demand is generated in this segment.”

The current definitions of affordable housing fail to reflect the market realities of today, particularly in metro cities like Mumbai where homes under Rs 45 lakh are virtually non-existent.

Experts are advocating raising the price cap to around Rs 85 lakh in Mumbai and Rs 60-65 lakh in other metro cities. Such a revision will not only expand the scope of affordable housing but also grant buyers access to lower GST rates and other subsidies.

3) Restoring ‘Tax Holiday’ for Developers

Says Puri, “The tax holiday under Section 80-IBA of the Finance Act, 2016, was a major incentive that boosted affordable housing supply.”

Experts opine that reintroducing this benefit could be transformative for the sector by offering substantial tax breaks to developers focused on affordable housing projects.

4) Tax Benefits for Homebuyers

The current tax deduction limit on home loan interest under Section 24(b) stands at Rs 2 lakh. Industry leaders like Ashwin N. Sheth, chairman and managing director of Ashwin Sheth Group, and Kaushal Agarwal, co-founder and director of the Guardians Real Estate Advisory believe that this cap needs to be raised to Rs 5 lakh considering how the property costs and interest rates are rising and impacting the affordability for homebuyers.

“Specific to the premium and luxury housing segment, which has picked up pace within consumer communities, a pertinent industry demand is to consider revision of the current tax exemption limit on housing loans to Rs 5 lakh and revisiting the long-term capital gains tax on real estate investments to enhance the sector’s market attractiveness,” Sheth states.

Adds Aggarwal, “Reinstating the CLSS and offering tax holidays for developers could drive project development, and raising the home loan interest deduction limit would further support housing affordability.”

5) Reduce GST on Construction Materials

High input costs for materials like steel and cement have been a significant hurdle for developers. Many, including Yash Miglani, Managing Director, Migsun recommend lowering the GST on cement and other raw materials to reduce construction costs.

According to realtors, this would help them enable developers to pass on savings to homebuyers and make homes more affordable.

Adds Manju Yagnik, vice chairperson of Nahar Group and Senior Vice President of NAREDCO-Maharashtra, “Revising tax regulations for developers and stabilising raw material prices will help manage construction costs and maintain housing affordability. These initiatives will not only boost the real estate sector but also contribute to India’s broader economic and housing goals, fostering sustainable growth nationwide.”

Addressing Gaps In Affordable Housing Segment

India’s urban housing shortages are projected to reach some 25 million by 2030. To bridge this gap, Sanjeev Arora, Director, 360 Realtors, suggests releasing centrally controlled land managed by agencies like Indian Railways and Port Trusts for affordable housing projects.

“The government should promote innovations in the form of prefab buildings, precast materials, and fly ash bricks, as they can help in rationalizing the cost of construction and give a further flip to affordable housing,” he states.

PPP for the Push

Ashish Bhutani, CEO of Bhutani Infra advocates for strengthening the public-private partnerships (PPP) and increased funding for Pradhan Mantri Awas Yojana (PMAY).

“Collaborations between the government and private developers can bridge the urban housing gap while driving inclusivity and economic growth,” he states.

The industry has also called for dedicated benefits under Section 80C by introducing a separate annual deduction of Rs 1.5 lakh for home loan principal repayments. Additionally, tax relief on rental income is also among the popular demands with a 100 per cent exemption on rental income up to Rs 3 lakh for properties priced at Rs 50 lakh or below.

Affordable housing is not about building cheaper homes but setting policies that help the industry cater to the homebuyers' needs.

With Budget 2025 around the corner, the real estate sector, especially affordable housing, is hopeful for a revival. Measures like reinstating CLSS, enhancing tax benefits, and reducing GST could act as game-changers.