India's Affordable Housing Dream: Budget 2026 Could Be the Key

India is at an inflection point in housing affordability. Across the country, lower interest rates on home loans, income growth, and government interventions are creating conditions that could bring a wider swath of the population into the housing market.

Yet the road to truly affordable homes remains uneven, with stalled projects, rising input costs, and narrow policy definitions constraining supply. Housing finance companies (HFCs) and real estate developers are urging the government to act decisively in the upcoming Union Budget 2026-27 to sustain this momentum, especially in the affordable housing segment.

Mortgage lenders have pressed for the revival of fiscal and regulatory incentives, including a four-year tax holiday and higher floor space index (FSI) for projects catering to economically weaker section (EWS) and low-income group (LIG) households. The first Pradhan Mantri Awas Yojana (PMAY 1.0) offered developers 100% income tax exemption on profits from approved affordable housing projects.

“The tax exemption under PMAY 1.0 played a critical role in improving project viability. Without similar incentives, developers are unable to make the numbers work in affordable housing,” said an official who wished to remain anonymous. That scheme ended in March 2022 and was not carried forward under PMAY 2.0.

Builders have been retreating from the affordable segment as rising land prices, higher costs of cement, steel, and labour, combined with tighter financing conditions, have squeezed margins. Delays in approvals and the withdrawal of government incentives have further weakened project economics, pushing developers toward mid- and high-income housing, where pricing power and cash flows are more predictable.

“A large section of homebuyers is increasingly being priced out of affordable housing as project costs have surged while incomes have remained largely stagnant,” said the chief executive of a housing finance company, speaking to ET on condition of anonymity. “With loan tenures capped at around 30 years, developers will have to price projects more realistically to restore affordability and improve buyers’ purchasing power.”

The Confederation of Real Estate Developers’ Associations of India (CREDAI) has echoed these concerns, asking the government to revisit the definition of affordable housing and extend tax incentives to developers. As per the association, the existing price cap of ₹45 lakh, set in 2017, is no longer realistic.

“The price cap of ₹45 lakh for affordable homes should be either scrapped or increased to ₹90 lakh,” said CREDAI National President Shekhar Patel. CREDAI Secretary Gaurav Gupta added that raising the cap would benefit homebuyers as affordable homes attract a GST of just 1%. “The government should also consider providing some tax incentives to real estate companies developing affordable housing projects,” he said.

The industry’s calls come against a backdrop of improving affordability across major cities, according to Knight Frank India’s 2025 Affordability Index. Ahmedabad has emerged as the most affordable housing market with an EMI-to-income ratio of 18%, followed by Pune and Kolkata at 22% each. Mumbai has crossed a historic threshold, with the ratio dropping below 50% for the first time, signalling a more sustainable environment for homebuyers in the country’s priciest market.

Shishir Baijal, Chairman and Managing Director of Knight Frank India, said, “Income growth has outpaced price increases in recent years, and when combined with declining interest rates, has strengthened home affordability across markets.” With the RBI projecting 7.3% GDP growth for FY26 and a benign interest-rate outlook, affordability levels are expected to remain supportive in 2026.

Even so, affordability is nuanced. Residential sales in the top seven cities fell by 14% in 2025, according to Anarock, reflecting hardening property prices, IT sector layoffs, geopolitical tensions, and other uncertainties. Yet the overall value of sales rose 6%, from ₹5.68 lakh crore in 2024 to over ₹6 lakh crore in 2025, indicating that demand for premium housing remains robust.

MMR and Pune accounted for nearly half of residential sales in the top cities, though both markets saw significant annual declines. New launches, however, rose marginally, with more than 21% of new supply priced above ₹2.5 crore, highlighting a continued appetite for high-end homes. “The sector’s performance in 2026 hinges on several key factors, most notably rate cuts by the RBI and price control by developers,” said Anuj Puri, chairman of Anarock group.

Government interventions are also in play. Under PMAY-U and PMAY-U 2.0, a total of 1.11 crore houses have been sanctioned, with 95.54 lakh completed and handed over. Finance Minister Nirmala Sitharaman’s 2025 Union Budget included the second tranche of the Special Window for Affordable and Mid-Income Housing (SWAMIH) fund, allocating ₹15,000 crore to complete stuck projects and deliver 100,000 units.

“Under SWAMIH, 50,000 dwelling units in stressed housing projects have been completed, and keys handed over to home buyers. Another 40,000 units will be completed in 2025, further helping middle-class families who were paying EMIs on loans taken for apartments, while also paying rent for their current dwellings,” Sitharaman said.

The story of housing affordability in India is one of progress tempered by structural challenges. Interest-rate relief, income growth, and targeted government schemes have made homeownership more attainable than before. Yet stalled supply, rising costs, and narrow definitions of affordability threaten to leave millions on the outside. Reviving tax incentives, reconsidering price caps, and bolstering project viability could help ensure that affordability is not just a headline, but a reality for the next generation of Indian homebuyers.