Will Union Budget 2025 revive India's affordable housing segment?

Will the Union Budget 2025 revive the affordable housing segment in India?

As the government prepares to present the Union Budget next month, the real estate sector is expecting major policy reforms to boost the shrinking affordable housing segment in the country.

Experts say initiatives such as the Credit-Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana (PMAY) and tax incentives for developers can help grow the segment at large.

The Confederation of Real Estate Developers Associations of India (CREDAI) has also urged the central government to change the definition of affordable housing by delinking unit prices from the carpet area criteria.

“CREDAI recommends delinking unit prices from the carpet area definition and suggests updating the thresholds to 70 square metre for metro cities and 90 square metre for Tier 1 cities. These adjustments aim to incentivise developers to focus on affordable housing projects while making homeownership more accessible to a broader range of income groups,” said Boman Irani, President, CREDAI.

Once a promising sector, affordable housing— with homes priced under Rs 40 lakh—has struggled post-pandemic, with demand and supply shrinking significantly. According to ANAROCK data, the sales share of affordable housing fell to a mere 18 percent in 2024 from over 38 percent in 2019. Similarly, its share of the total housing supply in the top seven cities dropped to 16 percent in 2024 from nearly 40 percent in 2019.

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Anuj Puri, chairman, ANAROCK Group, said that for the affordable housing segment, a critical issue remains the lack of urban land, particularly in areas where affordable housing is most needed. To address this, the government could release centrally controlled land – managed by agencies like the Indian Railways, Port Trusts, and the Department of Heavy Industries – for affordable housing projects.

Revision in affordable housing criteria

Puri said that current definitions of affordable housing, based on size, price, and buyer income, require urgent revision.

Also Read: Budget 2025: Real estate sector seeks industry tag, single window clearance, tax rebate on housing loan interest

“The price cap of Rs 45 lakh is unrealistic in high-cost cities like Mumbai. The cap should be raised to at least Rs 85 lakh in Mumbai and Rs 60-65 lakh in other metro cities to reflect market realities. Such revisions would enable more properties to qualify as affordable housing, granting buyers access to lower GST rates (1 percent without ITC) and other subsidies,” Puri added.

CREDAI, in its recommendations, has urged the government to revise the existing cap of Rs 45 lakh. As per the National Housing Board data, there is a 38 percent increase in housing prices since June 2018 in India.

Reintroduce Credit-Linked Subsidy Scheme under PMAY

Realty experts said that the subsidy scheme for EWS (economically weaker segment) and LIG (low-income group) households, which expired in 2022, should be reinstated to incentivise first-time buyers of affordable homes. It could also be extended to loans for new construction or adding essential features like rooms, kitchens, or toilets to existing properties.

Also Read: Why affordable housing remains a bright spot in India’s housing sector

Under PMAY (Rural), subsidies could help convert ‘kaccha’ homes into ‘pucca’ ones, provided eligibility criteria are met.

To enhance homeownership opportunities for low- and middle-income groups, CREDAI has proposed introducing a Credit Guarantee Scheme. The scheme should cover housing loans up to Rs 70 lakh and home improvement loans up to Rs 30 lakh. This initiative would reduce the risks faced by lenders, curtail reliance on high-cost private financing, and significantly improve financial inclusion in the housing market, Irani said.

Fiscal measures to boost affordable housing

Irani said to boost the supply of affordable housing, CREDAI recommends extending the lower 15 percent income tax rate, currently available to manufacturing companies, to affordable housing projects. This measure would incentivise developers to increase their focus on affordable housing developments, thus bridging the housing gap.

Vijay Kamboj, founder of BRIC-X INFRA, concurred, saying that tax breaks for developers who are interested in affordable housing, as well as for first-time homebuyers, will promote greater investment in this critical sector.

“Affordable housing revival would require a strategic approach combining fiscal prudence with inclusive growth. One strategy to revive this segment is to present lower interest rates on loans for affordable housing, which will make it easier for low- and middle-income families to purchase homes,” he said.

Kamboj added that collaboration between the government and private developers will increase the pace of affordable home delivery.

Mohit Goel, Managing Director, Omaxe Limited said the government should prioritise fiscal incentives for affordable and mid-segment housing, including tax benefits for developers and buyers and enhanced funding under PMAY. This would not only help the sector maintain its current momentum but also help meet the demand for quality homes, he said.
Mohit Mittal, CEO, MORES, a real estate investment advisory firm, said that enhanced tax deductions on home loans and reduced stamp duty charges can drive homeownership.
“Affordable housing, a key government focus, requires extending benefits under the PMAY scheme and rationalising GST rates to sustain demand,” he said.