Budget FY27: Will It Bridge The Great Housing Divide & Stem Residential Slide?

The great housing divide is quite evident from the 2025 industry statistics. While housing sales across the top 7 cities fell by 14%, sales value increased by 6% due to a surge in premium and luxury housing sales. Overall, premium (INR 80 lakh–1.5 crore) and luxury (INR 1.5 crore plus) homes grabbed the largest share of new supply and demand in 2025.

According to Anarock Research, the share of affordable homes under INR 50 lakh in top cities fell from 52% in 2018 to around 17% in 2025, at the cost of the premium and luxury segment gaining dominance. Affordable housing supply too came down significantly, from 40% in 2019 to just 12% in H1 2025. The number of affordable homes under INR 1 crore in major cities declined by 36% between 2022 and 2024. The supply-to-demand ratio for affordable housing fell from a healthy 1.05 in 2019 to 0.36 in 2025, with 60% and 50% declines in the country's two top residential markets of Mumbai and Delhi-NCR, respectively.

How did this situation of a sharp skew against affordable housing develop in the residential market? The runaway increase in land cost has been a major cause. Over the past few years, many developers—big and small—resorted to land banking, resulting in price escalation. Some small and medium developers, especially from Delhi-NCR, resorted to land buying for speculative purposes. They are now offloading these prime land parcels at much higher prices. They have been either outrightly selling land to big branded players or entering into joint development pacts with them, putting their land as equity. What further made matters worse were surging construction costs in terms of construction material and labour and rising interest rates, escalating the EMI-to-income ratio from 43% to 60%. This, in turn, priced out a large number of budget buyers.

In such a scenario, as developers' margins got significantly squeezed in the affordable housing segment, they shifted to luxury housing in a big way. Industry statistics show that NCR saw over a 190% surge in luxury housing supply. This pushed a large number of end-users out of the market and instead encouraged speculative buying with practices like EOI.

The government's flip-flop policies on affordable housing under PMAY also precipitated the matters by discontinuing incentives to developers and homebuyers. A 100% income tax waiver to the developers of affordable housing was withdrawn. The tax holiday to homebuyers under Section 80-1BA of the IT Act was allowed to expire. There was also a gap in the implementation of the Credit Linked Subsidy Scheme (CLSS) under PMAY, and in the revised scheme, the benefits of interest subsidy on home loans were curtailed.

In view of all this, the FY 27 budget needs to adopt a multi-pronged approach with direct and indirect policy measures to put an end to the demand and supply skew against affordable housing—the main pillar of the Modi government's “Housing For All” policy. In an indirect measure, the budget should keep the investment momentum for infrastructure development and connectivity for Tier-2 and Tier-3 destinations, which are emerging as high-growth real estate corridors. There is an urgent need for reforms related to land, finance, and affordable housing, including rental housing, to bring down home prices, simultaneously easing the situation for developers for boosting supply and homebuyers for boosting demand.

For developers of affordable housing, it can be achieved by providing surplus PSU land at reasonable rates and restoring 100% income tax relief, simplifying and rationalizing GST on building materials and work contracts, lowering borrowing costs, restoring input tax credit, and fast-tracking project approvals. For homebuyers, the scope of CLSS under PMAY should be enlarged to expand the benefits of home loan interest subsidy to first-time homebuyers of affordable housing. Further, the budget should hike income tax relief on home loans—especially reviving the tax holiday under Section 80-1BA of the Income Tax Act—and offer relief on capital gains tax to encourage home purchases.

But the moot question is: Will the upcoming budget live up to the expectations of the real estate industry to ensure balanced and sustainable growth of the housing sector?

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