Budget 2024: Will affordable housing finally receive the boost it needs? Key expectations from the real estate sector

With Union Budget 2024-25 set to be tabled in July, the real estate sector pins renewed hope on the Modi 3.0 regime.

"Expectations are high for tax reliefs and other sentiment boosters. The future of the overall industry also depends on unfettered infrastructure deployment to support and improve urban living standards as well as to develop and promote newer areas," said Anuj Puri, chairman, Anarock Group, in a recent budget expectations note.

Puri questions whether the government will finally grant industry status to the entire housing sector and take substantial measures to revive the affordable housing segment, which has steadily declined since the pandemic.

As per the report, the Indian housing sector remained upbeat in 2024 to date, with housing sales and new launches creating new peaks in the top 7 cities. Sales reached an all-time high at about 4.93 lakh units in FY23-24, while 4.47 lakh units were launched.

However, Puri emphasised that while the current growth momentum in the housing sector is strong, it is largely skewed towards mid-range and premium housing. He highlighted that this trend cannot be sustained if affordable housing continues to lag, considering the specific needs of India’s lower-income groups.

According to Anarock Research, the sales share of affordable housing dropped significantly after COVID-19, falling from over 26 percent in 2022 and over 38 percent in 2019 to around 20 percent in Q1 2024. This segment's share of the total housing supply in the top seven cities also declined to 18 percent in Q1 2024, down from nearly 40 percent in 2019, due to low demand.

Puri noted that many incentives previously offered to buyers and developers of affordable housing have expired over the last two years. To revive this crucial segment, high-impact measures such as tax breaks for developers and buyers are necessary to encourage focus on affordable housing and improve affordability.

Additional measures to reignite affordable housing could include:

Credit-linked subsidy scheme under PMAY: According to Puri, the scheme for EWS/LIG, which expired in 2022, should be revived to incentivise first-time buyers of affordable homes across cities, thereby boosting demand in this segment. Previously, the CLSS was available for housing loans to EWS/LIG buyers for new constructions and for adding rooms, kitchens, and toilets to existing dwellings, subject to government guidelines. Under PMAY (Rural), the subsidy was also available for converting 'kaccha' homes into 'pucca' ones, provided they met the eligibility criteria. Reviving this scheme would invigorate demand in the affordable housing sector.

Re-introduce 100 percent Tax Holiday for affordable housing developers: Puri also pointed out that to boost supply and incentivise developers to build more affordable housing, the government can re-introduce the ‘100 percent Tax Holiday' benefit they previously enjoyed under section 80-IBA in the Finance Act, 2016. This section provided for major tax relief on the profits earned from developing and building affordable housing projects.

Tweak the definition of affordable housing criteria to widen additional deductions benefits to more buyers: According to the Ministry of Housing and Urban Poverty Alleviation, affordable housing is defined by property size, price, and buyers’ income. Specifically, it includes houses or flats with a carpet area up to 90 sq. m. in non-metropolitan cities and towns, and 60 sq. m. in major cities, valued up to ₹45 lakh. In contrast, the central bank defines affordable housing based on the loans banks provide for building or purchasing homes, Puri noted.

The government should seriously reconsider revising the pricing of homes within the affordable housing budget to reflect city-specific market dynamics. While the current definition's unit size of 60 sq. m. is appropriate, the price cap of ₹45 lakh is not viable in most cities, he said.

For example, in Mumbai, a budget of less than INR 45 lakh is unrealistic and should be increased to at least INR 85 lakh. In other major cities, the budget should be raised to at least INR 60-65 lakh. These revisions would allow more homes to qualify as affordable, enabling more buyers to benefit from lower GST rates at 1 percent without ITC, government subsidies, and other incentives.

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