OPINION | What the housing finance sector hopes to see in the budget to boost affordability

Housing Finance

As India prepares for the Union Budget 2026, housing finance institutions are looking beyond incremental measures to structural reforms that can meaningfully improve housing affordability and expand homeownership. With urbanisation accelerating, household aspirations evolving and first-time buyers entering the market in larger numbers, the Budget presents an opportunity to recalibrate policy levers in line with today’s economic realities.

Affordability is the key

Affordability remains the single most critical factor shaping home-buying decisions. While interest rates, income growth and supply dynamics play a role, fiscal and regulatory support continue to be decisive enablers, particularly for the affordable and mid-income housing segments.

From a housing finance perspective, the focus this year must shift to modernising definitions, deepening access to credit and strengthening last-mile execution.

Revisiting the definition of affordable housing

One of the most pressing structural gaps today lies in the definition of affordable housing itself. The current property value threshold of Rs 45 lakh no longer reflects market realities. Over the past few years, land prices, construction costs, regulatory compliance expenses and input inflation have increased significantly, especially across Tier 1 cities and rapidly growing Tier 2 hubs. As a result, even modest, end-user homes often fall outside the existing affordability bracket.

Increasing the affordable housing limit from Rs 45 lakh to Rs 75 lakh would be a logical and market-aligned reform. This change would not dilute the intent of affordable housing; rather, it would modernise it. A revised threshold would allow policy benefits to reach genuine middle-income and first-time buyers who are currently excluded despite facing affordability constraints. For housing finance institutions, such a move would also create greater clarity in product design and eligibility, enabling more targeted lending without encouraging speculative demand.

Strengthening tax incentives for home buyers

Tax benefits have historically played a catalytic role in encouraging home ownership. While existing deductions on home loan interest and principal repayment have provided relief, there is scope to enhance their effectiveness. A higher interest deduction limit for self-occupied homes, especially for first-time buyers, could improve monthly affordability and purchasing confidence.

Equally important is continuity and clarity. Stable, long-term tax incentives allow buyers to plan better and lenders to design products with greater certainty. From a sector standpoint, predictable policy signals are far more effective than short-term stimulus.

Lowering the cost of credit and expanding access

Access to affordable credit is central to boosting housing demand. Housing finance companies and banks have significantly strengthened their underwriting, risk management and digital capabilities over the past few years. Budgetary support that enables further reduction in the cost of funds, whether through targeted refinancing windows, partial credit enhancement mechanisms or expanded priority sector allocations can help lenders pass on benefits to borrowers.

For underserved segments, especially informal income households and self-employed borrowers, policy-backed risk-sharing co-lending partnerships can unlock credit flow without compromising asset quality. This is particularly relevant in Tier 2 and Tier 3 markets, where demand is strong, but formal credit penetration remains uneven.

Accelerating supply-side execution

Affordability is as much about supply as it is about demand. Faster project approvals, rationalisation of GST on under-construction properties and incentives for developers focused on mass housing can improve supply efficiency and pricing discipline. A coordinated push to streamline approvals at the state and local levels would reduce project timelines, lower financing costs and ultimately benefit home buyers.

In parallel, continued investment in urban infrastructure such as transport, water, sanitation and connectivity enhances the liveability and value of affordable housing projects, making them more attractive to end-users.

A long-term vision for housing-led growth

Housing has always been a long-gestation sector, but affordability cannot wait. Union Budget 2026 could reset the housing narrative by aligning policy with today’s price realities and evolving buyer profiles. Affordability today is about relevance, not relief, and if the focus shifts to execution-led reforms rather than incremental tweaks, housing can once again emerge as a reliable driver of economic momentum while turning home ownership from a stretched aspiration into a practical, confident decision.

(Mehernosh Tata is MD & CEO, Godrej Housing Finance.)

Views are personal, and do not represent the stand of this publication.