Will Union Budget 2025 Revive India's Shrinking Affordable Housing Segment?

The affordable housing sector in India has faced a significant decline in recent years. According to ANAROCK data, the share of affordable housing sales fell to just 18% in 2024, down from 38% in 2019. Similarly, the proportion of affordable housing in the total housing supply in the top seven cities dropped to 16% in 2024, compared to nearly 40% in 2019. With these alarming trends, the real estate sector is looking to the Union Budget 2025 for major policy reforms to revive this shrinking segment.

The Current State of Affordable Housing

Affordable housing traditionally refers to homes priced under Rs 40 lakh for lower-income groups. However, this segment has struggled post-pandemic. A primary issue is the lack of urban land, especially in areas where affordable housing is most needed. Rising land prices and construction costs have made it difficult for developers to offer affordable homes.

Another challenge is the outdated definition of affordable housing, particularly in high-cost cities like Mumbai. Experts and bodies like CREDAI argue for a revision of these criteria to make housing more accessible to a broader range of people.

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Key Issues Facing Affordable Housing

Expectations from Union Budget 2025

As the Union Budget 2025 approaches, experts and industry bodies like CREDAI and ANAROCK are hoping for significant reforms to boost the affordable housing sector. Some of the key expectations are:

1. Revision of Affordable Housing Criteria

CREDAI has urged the government to raise the price cap for affordable housing in metro cities like Mumbai. They recommend increasing the cap to Rs 85 lakh in Mumbai and Rs 60-65 lakh in other metro cities. This would help more properties qualify for affordable housing benefits.

Additionally, CREDAI suggests updating the carpet area limits to 70 square meters for metro cities and 90 square meters for Tier 1 cities. These changes would encourage developers to focus on affordable housing projects.

2. Reinstating the Credit-Linked Subsidy Scheme (CLSS)

The CLSS under PMAY was vital in supporting first-time homebuyers in the EWS and LIG categories. Experts suggest reinstating this scheme to help revive demand for affordable housing. The subsidy could also be extended to loans for new construction or home improvements, especially in rural areas.

3. Tax Incentives for Developers

To incentivize affordable housing projects, CREDAI proposes extending the lower 15% income tax rate, currently available to manufacturing companies, to affordable housing developers. This would reduce developers' financial burdens and encourage investment in low-cost housing.

In addition, experts recommend offering tax breaks to first-time homebuyers to make affordable homes more financially viable.

4. Collaboration Between Government and Private Developers

To accelerate the delivery of affordable homes, public-private partnerships (PPPs) could play a crucial role. The government can provide land and infrastructure support, while private developers bring in expertise and resources to speed up the process.

5. Credit Guarantee Scheme for Homebuyers

A Credit Guarantee Scheme is another proposal that could improve financing options for homebuyers. CREDAI suggests covering housing loans up to Rs 70 lakh and home improvement loans up to Rs 30 lakh. This would reduce risks for lenders and help make home loans more accessible.

6. Fiscal Incentives for Mid-Segment Housing

Experts also recommend focusing on the mid-segment housing market, which bridges the gap between affordable and luxury homes. Fiscal incentives for this segment could help meet the growing demand for quality homes in the middle-class market.

7. Promoting Green and Sustainable Housing

With environmental concerns growing, Budget 2025 could introduce incentives for sustainable housing projects. Tax rebates or subsidies for developers using eco-friendly materials or energy-efficient technologies would benefit both homeowners and the environment.

Conclusion

The affordable housing sector in India has faced significant challenges over the years, and the shrinking sales and supply indicate the need for urgent reforms. Union Budget 2025 presents an opportunity to revive this sector. By revising affordability criteria, reinstating subsidy schemes, offering tax incentives, and promoting sustainable housing, the government can make affordable housing more accessible and feasible for millions of Indians. With the right reforms, Budget 2025 can help reignite the affordable housing market and make homeownership a reality for many more citizens.

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