As the Union Budget 2026 approaches, the Indian real estate sector is watching with bated breath. Building on years of sustained public investment in infrastructure that has bolstered housing demand, the industry is now looking for targeted policy measures to navigate pressing challenges. According to analysis from firms like Palladian Partners Advisory Ltd, the focus is squarely on three critical areas: enhancing affordability for homebuyers, rationalizing the complex tax landscape, and ensuring a steady flow of project funding for developers. These themes are not just wish-lists; they are seen as essential for maintaining the sector’s growth momentum and its significant contribution to the national economy.
The Foundation: Continued Infrastructure-Led Growth
The government’s unwavering commitment to infrastructure development has been a primary driver for real estate. The creation of new highways, metro lines, airports, and industrial corridors has opened up new micro-markets and improved connectivity, making peripheral areas more attractive for residential and commercial development. This strategic public spending, guided by initiatives like the National Infrastructure Pipeline (NIP), has a direct and positive correlation with housing demand. As these new corridors mature, the expectation is that Budget 2026 will continue this focus, ensuring that the foundational support for real estate expansion remains strong.
Addressing the Core Challenge: Housing Affordability
Despite a robust demand outlook, the “affordability gap” remains the most significant hurdle for the average homebuyer. A combination of rising property prices, increased construction costs, and a high-interest-rate environment has pushed homeownership out of reach for many. Industry bodies and experts are unanimous in their call for measures that put more money back into the pockets of buyers.
Key expectations to enhance affordability in Budget 2026 include:
- Increasing Home Loan Interest Deduction: There is a strong demand to raise the tax deduction limit on home loan interest under Section 24(b) of the Income Tax Act from the current ₹2 lakh to at least ₹5 lakh. The ₹2 lakh limit was set in 2014 and is widely considered outdated given the sharp rise in property values across major cities.
- Redefining ‘Affordable Housing’: The current price cap of ₹45 lakh for a property to be classified as ‘affordable housing’ is no longer tenable in most urban centers. Experts suggest a revision of this definition, possibly with city-specific tiered pricing, to reflect current market realities and allow more homes to qualify for associated benefits like lower GST rates.
- Enhancing Principal Repayment Benefits: The deduction for home loan principal repayment is currently clubbed under the crowded Section 80C limit of ₹1.5 lakh, which also includes other investments like PPF, ELSS, and insurance premiums. Creating a separate, dedicated deduction for principal repayment would provide a significant, direct benefit to homebuyers.
Streamlining Taxation for a More Transparent Market
The taxation framework for real estate, particularly the Goods and Services Tax (GST), remains a point of contention that adds to project costs. A more streamlined and rational tax structure could unlock efficiency, lower costs, and improve transparency across the board.
The industry’s primary tax-related asks for the upcoming budget are:
- Allowing Input Tax Credit (ITC) on GST: Currently, developers cannot claim Input Tax Credit on GST paid for construction materials and services for residential projects. This leads to a cascading tax effect, ultimately inflating the final property cost for the buyer. Reintroducing ITC is seen as a critical step to lower construction expenses.
- Rationalizing Long-Term Capital Gains (LTCG) Tax: The tax treatment for capital gains from property sales is less favorable compared to other asset classes like equities. The industry is advocating for a reduction in the holding period for a property to be considered ‘long-term’ from 24 months to 12 months, and a potential reduction in the LTCG tax rate to bring it at par with other investments.
- Incentivizing Rental Housing: To address the housing shortage and formalize the rental market, experts recommend introducing tax breaks and incentives for developers building ‘Build-to-Rent’ projects. According to a Knight Frank India report, a robust rental housing market is crucial for urban centers.
Fueling the Engine: The Critical Need for Project Funding
A consistent and affordable supply of capital is the lifeblood of the real estate industry. While large, organized players have access to multiple funding avenues, smaller developers continue to struggle with liquidity, leading to project delays. Ensuring a healthy financial ecosystem is vital for timely project completion and maintaining housing supply.
Measures that could improve the funding landscape include:
- Expanding the SWAMIH Fund: The SWAMIH (Special Window for Affordable and Mid-Income Housing) fund has been instrumental in reviving stalled projects. The industry hopes for the announcement of a ‘SWAMIH II’ with a larger corpus to rescue more stressed projects and protect homebuyers’ investments.
- Granting ‘Industry Status’: The long-standing demand for granting ‘Industry Status’ to the entire real estate sector, not just affordable housing, persists. This would enable developers to access financing from banks and financial institutions at more competitive rates, reducing their cost of capital.
- Encouraging Foreign Investment: Further easing of regulations for Foreign Direct Investment (FDI) in real estate could attract more long-term, patient capital, providing a much-needed boost to large-scale residential and commercial projects.
Conclusion: Crafting a Budget for Sustainable Growth
The expectations from Union Budget 2026 are clear: the real estate sector is looking for a pragmatic and forward-looking policy framework. By addressing the core issues of affordability, tax rationalization, and project funding, the government can empower homebuyers, support developers, and ensure the sector’s sustainable growth. Such measures would not only invigorate the property market but also trigger a positive ripple effect across more than 250 ancillary industries, generating employment and strengthening India’s overall economic resilience.
