As India looks towards the Union Budget 2026, the real estate sector is watching with bated breath. A critical focus of this anticipation is the affordable housing segment, a cornerstone of the nation’s socio-economic fabric that has faced significant headwinds in recent years. Leading the call for decisive action, real estate consultancy Knight Frank India has presented a series of urgent recommendations, urging the government to introduce strong fiscal measures to breathe new life into both affordable and rental housing markets.
The core of the issue lies in a sharp decline in the affordability and demand for homes in the sub-Rs 50 lakh category, a segment that once drove the residential market. With rising property prices, higher interest rates, and the conclusion of key government subsidies, the dream of homeownership is slipping away for many. Knight Frank’s proposals for Union Budget 2026 aim to reverse this trend and create a more robust and inclusive housing ecosystem.
The Worsening Affordability Crisis
The data paints a concerning picture. The share of affordable housing in total home sales across India’s major cities has plummeted. Before the pandemic, this segment often contributed upwards of 40% to total sales volumes. Recent reports indicate this share has shrunk to nearly 20%, signaling a structural crisis. This decline is not just a statistic; it represents millions of Indian families finding it increasingly difficult to enter the property market.
According to Knight Frank’s proprietary Affordability Index, affordability has consistently worsened across all major Indian cities since 2021. The index, which tracks the proportion of income a household needs to fund their monthly home loan installment (EMI), shows that the combination of rising home loan interest rates and increasing property values has stretched household budgets to their breaking point.
Knight Frank’s Prescription for a Strong Revival
To address these challenges head-on, Knight Frank has outlined a multi-pronged strategy focusing on demand stimulation, supply-side incentives, and policy reinforcement. These recommendations for the upcoming Union Budget are designed to restore buyer confidence and make housing development financially viable again.
1. Redefine and Reinforce PMAY for Today’s Market
The Pradhan Mantri Awas Yojana (PMAY) was instrumental in boosting affordable housing. However, the end of the Credit Linked Subsidy Scheme (CLSS) for the Middle-Income Group (MIG) created a significant demand vacuum. Knight Frank recommends reviving and expanding this popular scheme.
- Increase Price Caps: The current price cap of Rs 45 lakh for homes to qualify as affordable housing under the PMAY-Urban scheme is no longer realistic in most major cities due to inflation and rising construction costs. The recommendation is to increase this limit, allowing more homebuyers to benefit from potential subsidies and incentives.
- Reintroduce CLSS: Reintroducing the interest subsidy for all buyer categories would provide a direct, tangible benefit, immediately improving affordability and reviving homebuyer sentiment.
2. Boost Homebuyer Power with Higher Tax Deductions
A powerful tool at the government’s disposal is personal income tax relief. The current deduction limit on home loan interest under Section 24(b) of the Income Tax Act has remained at Rs 2 lakh per annum for over a decade.
- Double the Deduction Limit: Knight Frank proposes increasing the home loan interest deduction limit to at least Rs 4-5 lakh. In an era of high-value loans and elevated interest rates, this change would significantly enhance the disposable income of homebuyers, directly lowering the effective cost of borrowing and stimulating demand across all housing segments.
Unlocking the Vast Potential of Rental Housing
Alongside homeownership, a vibrant rental housing market is crucial for a mobile and modern workforce. However, India’s rental market remains largely unorganized, with extremely low rental yields (2-3%) discouraging institutional investment in ‘Build-to-Rent’ (BTR) projects.
To catalyzethis sector, Knight Frank suggests a bold fiscal incentive:
- Tax Waivers for Rental Income: The consultancy proposes a complete tax holiday on rental income for a specified period (e.g., 5-10 years) for newly constructed rental housing projects. This single move could dramatically improve the financial viability of BTR assets, attracting organized capital and professionalizing the rental market. It would increase the supply of quality rental homes, helping to stabilize rents and offer better living conditions for tenants.
Building a Sustainable Future with Green Incentives
Aligning with India’s long-term sustainability goals, the budget can also steer the real estate sector towards a greener future. The development of environmentally friendly buildings offers long-term benefits, including lower utility costs for residents and a reduced carbon footprint.
- Incentivize Green Buildings: The proposal includes offering special incentives such as tax credits, grants, or faster approval processes for developers who obtain green building certifications from recognized bodies like the Indian Green Building Council (IGBC) or GRIHA. This would encourage the adoption of sustainable practices in construction and design.
The Ripple Effect: A Boost for the Entire Economy
A strong push for the housing sector is not just about real estate; it’s about the broader economy. The construction and real estate sectors are significant job creators and have a multiplier effect on over 250 ancillary industries, including cement, steel, logistics, and manufacturing.
Reviving affordable housing will not only help achieve the ‘Housing for All’ vision but also trigger a virtuous cycle of economic growth, job creation, and increased consumer demand. The upcoming Union Budget 2026 presents a golden opportunity for the government to lay a strong foundation for the next phase of growth in India’s housing story. Will it seize the moment? The nation waits in hope.
