India’s housing market stands at a critical inflection point. While luxury home sales are breaking records and property prices continue to rise, the foundation of inclusive growth — affordable housing — is steadily eroding. The risk is no longer theoretical. India is fast heading towards a two-tier housing market, where luxury homes flourish while millions of middle- and lower-income households are priced out of ownership altogether.

Union Budget 2026 could prove decisive. Without strong, targeted policy intervention, the affordability gap will only widen, making homeownership increasingly unattainable for a vast section of urban India.

The Market Paradox: Growth That Masks a Crisis

At first glance, residential real estate appears robust. According to ANAROCK Research, the total value of homes sold in 2025 touched nearly ₹6 lakh crore, marking a 6% year-on-year increase. Institutional investments in real estate also surged, reaching USD 8.9 billion in 2024, a sharp 51% rise over the previous year.

However, these headline numbers conceal a deeper structural problem.

While the value of sales rose, the number of homes sold declined by 14% in 2025. The growth is being driven almost entirely by the luxury segment. Luxury housing sales to HNIs, NRIs, and wealthy professionals jumped 170% in 2024, transforming homes into investment instruments and inflation hedges.

Affordable housing, meanwhile, has fallen into a prolonged slump.

Affordable Housing: From Backbone to Bottleneck

Affordable housing’s share of the residential market has plunged from 38% in 2019 to just 18% in 2025, according to ANAROCK Research. This is not a cyclical slowdown but a structural collapse.

In 2018, over 52% of new homes launched in India’s top seven cities were priced below ₹50 lakh. By 2025, that figure has shrunk to just 17%. In metros, homes under ₹50 lakh now account for only one in six new launches.

The consequence is a rapidly widening urban housing shortage. India currently faces a deficit of 9.4 million urban homes, a number that could escalate to 30 million units by 2030 without corrective policy measures.

The Homebuyer Squeeze Is Real

For ordinary households, affordability has deteriorated sharply. The EMI-to-income ratio for homebuyers has risen from 43% in 2020 to nearly 60% today, well above sustainable thresholds. For middle-income families, the ratio has climbed from 28% to 40% over the same period, driven by rising property prices and higher interest rates.

ANAROCK’s latest Consumer Sentiment Survey reveals the scale of the problem. In Bengaluru alone, 42% of prospective buyers seeking homes under ₹1 crore have been priced out, despite demand for budget housing rising 13% year-on-year.

This is not a matter of preference but of compulsion — buyers simply cannot afford what the market offers.

Why Developers Are Abandoning Affordable Housing

The crisis is not demand-driven. It is rooted in the economics of real estate development.

Affordable housing typically offers 10–12% margins, while luxury and premium projects yield 25–30% or more. With land prices soaring, construction costs for steel, cement, and skilled labour remaining elevated, and approval timelines growing longer, affordable projects have become financially unviable.

Developers are responding rationally. Many have rebranded mid-income projects as premium offerings or exited the affordable segment altogether.

Compounding the issue is an outdated policy framework. The current definition of affordable housing — capped at ₹45 lakh, a threshold fixed in 2017 — bears little resemblance to today’s market realities. In Mumbai’s peripheral areas, a modest 600 sq ft apartment now costs ₹60–75 lakh. Pune, Bengaluru, and Delhi-NCR face similar mismatches.

Worse, developers building within this outdated cap are denied critical tax benefits.

The Missing Incentive: Section 80-IBA

The 100% tax holiday under Section 80-IBA, which played a catalytic role between 2016 and 2021, expired four years ago and has not been revived.

During its tenure, Section 80-IBA bridged the margin gap between affordable and mid-income housing, encouraging widespread developer participation. Its absence has sharply curtailed new launches.

Each year without this incentive potentially leaves 1.5 million households unable to transition into formal homeownership, increasing financial exclusion and informal housing growth.

A time-bound revival of Section 80-IBA, applicable to projects approved over a 24–36 month window, would be fiscally defensible and immediately impactful.

Infrastructure: The Silent Catalyst

Where policy has lagged, infrastructure has advanced. Metro rail expansions, expressways, ring roads, airports, and logistics corridors have consistently unlocked new housing markets.

Cities like Bengaluru, Hyderabad, NCR, and Pune demonstrate a clear pattern: infrastructure precedes real estate growth. Improved connectivity opens peripheral areas, attracts developers, and makes housing more affordable through land availability.

Budget 2026 must accelerate last-mile urban infrastructure, particularly metro extensions, suburban rail, and peripheral connectivity, to expand the affordable housing footprint.

Redefining Affordability for Urban India

The ₹45 lakh affordability cap is no longer viable. Budget 2026 should revise these thresholds based on city-specific realities:

• Mumbai & MMR: ₹85 lakh
• Delhi-NCR, Bengaluru, Pune, Hyderabad: ₹75 lakh

These limits reflect actual land and construction costs, not luxury creep. Crucially, carpet area norms must remain unchanged to prevent misuse.

Raising the price cap while retaining size limits could double the affordable housing supply, increasing its share of new launches from 18% to over 40%.

Strengthening Homebuyer Support Through CLSS

The Credit-Linked Subsidy Scheme (CLSS), reintroduced under PMAY-U 2.0, remains underutilized. Budget 2026 should strengthen it by:

• Increasing subsidy rates to offset higher interest costs
• Raising loan limits to ₹8–10 lakh for EWS/LIG and ₹15–18 lakh for MIG
• Simplifying disbursement to ensure faster, frictionless delivery

An annual CLSS outlay of ₹10,000–15,000 crore could support 1.5–2 million first-time buyers over five years — a direct, targeted intervention.

Budget 2026: A Defining Moment

India’s housing market stands at a crossroads. One path leads to deepening inequality — luxury homes for the wealthy and shrinking ownership for the middle class. The other promises balanced, inclusive growth powered by affordable housing, infrastructure, and smart incentives.

The policy tools are known. The need is urgent. Budget 2026 must act decisively, or the cost of inaction will be borne by millions of Indian families locked out of homeownership.

Also Read: 35 Lakh Homes, ₹50 Lakh Crore Investment: Maharashtra Unveils Massive Housing Push for MMR

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