As the Union Budget for FY 2026–27 approaches, global real estate consultancy Knight Frank India has outlined a comprehensive set of recommendations aimed at reviving affordable housing demand, strengthening rental housing, improving tax efficiency for homebuyers, and accelerating sustainable development.
The real estate sector, which contributes nearly 7% to India’s GDP and employs over 70 million people, remains central to economic growth, job creation, and urbanisation. According to Knight Frank India, a supportive fiscal framework in FY27 can unlock the next phase of housing-led growth while advancing the government’s vision of “Housing for All.”
Affordable Housing Sales Under Pressure
Knight Frank data shows that the share of affordable housing sales (homes priced below ₹50 lakh) has declined sharply from 54% in 2018 to 21% in 2025. Despite stable overall housing sales, the affordable segment saw a 17% year-on-year decline in 2025, primarily due to rising home prices, reduced disposable incomes, and limited access to formal credit.
To address this, Knight Frank has recommended revisiting the eligibility thresholds under PMAY 2.0. Currently, beneficiaries receive a 4% interest subsidy on loans up to ₹8 lakh, subject to a maximum house value of ₹35 lakh. However, this cap has become impractical in major metropolitan markets where home prices are significantly higher.
The consultancy has proposed increasing the maximum house value limit to ₹75 lakh, or aligning it with RBI’s priority sector lending norms, particularly for large urban centres.
In addition, Knight Frank has suggested increasing the home loan interest deduction under Section 24(b) of the Income Tax Act from the current ₹2 lakh to ₹5 lakh to improve affordability and stimulate demand, especially among first-time buyers.
Rental Housing Needs Policy Support
Knight Frank has also called for a stronger policy push towards rental housing, noting that while Affordable Rental Housing Complexes (ARHCs) exist, their current focus is largely limited to urban migrants.
The firm has recommended a 100% tax exemption on rental income up to ₹3 lakh for residential units priced up to ₹50 lakh. This measure, it says, would encourage investors to lease vacant homes and help ease the housing shortage in the most price-sensitive segment.
Land availability remains a major bottleneck for affordable housing. Knight Frank has proposed leveraging surplus government-owned urban land held by railways, defence establishments, and other public bodies to develop high-density rental housing. Under this model, units would be offered exclusively for long-term rental to income-qualified households, with ownership retained by the government and yields capped at around 2% of rateable value.
Additional recommendations include tax holidays for purpose-built rental housing during the first five years of operation and central government viability gap funding for ARHC projects in Tier-II and Tier-III cities.
Capital Gains Relief for Homebuyers
Knight Frank has also sought reforms under Section 54 of the Income Tax Act, which governs long-term capital gains reinvestment in residential property. The consultancy has recommended extending the completion timeline for under-construction properties from three years to five years, citing longer project timelines due to increased scale, regulatory compliance, and RERA-related delays.
It has further proposed relaxing the timeline for purchasing a new property prior to selling an existing one, extending it from one year to two years. This, Knight Frank argues, would allow homeowners greater flexibility and prevent distress sales undertaken solely to meet tax deadlines.
Push for Green and Sustainable Development
On sustainability, Knight Frank has recommended the introduction of a central subsidy programme covering 20–25% of incremental capital expenditure on green building materials and technologies, capped at ₹1–2 crore per project. The proposal draws from successful state-level models in Tamil Nadu and Andhra Pradesh, which offer subsidies for IGBC-rated green developments.
Industry View
Commenting on the upcoming Budget, Shishir Baijal, Chairman and Managing Director, Knight Frank India, said the housing sector requires urgent policy recalibration to address growing structural imbalances.
He noted that while residential markets have shown resilience, affordable housing continues to underperform due to declining affordability, high input costs, and limited end-user support. According to Baijal, realigning housing incentives with current urban cost structures, particularly in large cities, is critical to reviving both demand and supply.
Baijal also emphasised the need to build a formal, long-term rental housing ecosystem, stating that a supportive regulatory and fiscal framework could unlock underutilised housing stock, improve workforce mobility, and attract long-term institutional capital.
Continued investment in urban infrastructure and mass transit, he added, will remain essential to expanding affordable land supply and enabling more inclusive urban growth.
Also Read: Expectations From Union Budget By Real Estate Industry.
