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Will affordable housing subsidies be revived in Budget 2025?

Feb 01, 2025 08:18 AM IST

Real estate experts urge the govt to revive affordable housing initiatives and increase tax rebates to support the middle class in Union Budget 2025

Real estate experts have called for urgent reforms in Budget 2025 to boost affordable housing and support homeownership for the middle class. While the luxury housing market continues to thrive, experts stress that expanding the supply of homes in the 60 lakh to 1 crore price range should be the key priority.

With Budget 2025 just a few hours away, real estate experts are urging urgent reforms to boost affordable housing and enhance homeownership for the middle class. (Representational photo)(FILE PHOTO)
With Budget 2025 just a few hours away, real estate experts are urging urgent reforms to boost affordable housing and enhance homeownership for the middle class. (Representational photo)(FILE PHOTO)

Experts suggest the government reintroduce the Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana, increase tax rebates on home loans, and revise income and loan eligibility criteria to improve housing affordability. These measures could make homeownership more accessible for the middle class.

Experts say homes priced under 45 lakh have struggled post-pandemic, with demand and supply shrinking significantly. A critical issue remains the lack of urban land, particularly in areas where affordable housing is most needed. To address this, the government could release centrally controlled land—managed by agencies like the Indian Railways, Port Trusts, and the Department of Heavy Industries—for affordable housing projects.

According to ANAROCK data, the sales share of affordable housing fell to a mere 18% in 2024 from over 38% in 2019. Similarly, its share of the total housing supply in the top seven cities dropped to 16% in 2024 from nearly 40% in 2019.

Revise affordable housing criteria - sizes and price

Current definitions of affordable housing, based on size, price, and buyer income, require urgent revision. While the size criterion (60 sq. m. carpet area) is reasonable, the price cap of 45 lakh is unrealistic in high-cost cities like Mumbai, say experts.

To reflect market realities, the cap should be raised to at least 85 lakh in Mumbai and 60-65 lakh in other metro cities. Such revisions would enable more properties to qualify as affordable housing, granting buyers access to lower GST rates (1% without ITC) and other subsidies, said Anuj Puri, chairman of Anarock.

Why is there a need to revive affordable housing?

CY 2024 saw a slowdown in real estate due to general and state elections, with housing sales in the top seven cities declining by 4% to approximately 4.46 lakh units and new launches dropping by 7% to around 4.13 lakh units, as per ANAROCK research. However, with appropriate boosters for affordable housing, CY 2025 could bring a revival, helping the residential segment regain its 2023 highs in sales and launches, he added.

While the luxury housing segment is doing well, demand for affordable housing has plummeted, primarily due to the high land cost, said G Hari Babu, National President of NAREDCO. To revive it, the government should consider offering a fixed interest rate of 5% under PMAY to encourage buyers to take larger loans and invest in affordable homes.

Reintroduce the Credit-Linked Subsidy Scheme under PMAY

Pradeep Aggarwal, Founder and Chairman of Signature Global (India) Ltd, said that the government should revive the CLSS scheme and create affordable housing zones akin to SEZs, which could provide targeted incentives and address critical demand-supply gaps.

According to Babu, “The Union Budget 2025 presents a critical opportunity to address key challenges and propel the real estate sector towards sustainable growth. Revising the affordable housing price cap from 45 lakhs to 60 lakhs, which has remained unchanged for almost a decade, is imperative to account for rising input costs and inflation. Similarly, increasing the income tax deduction limit on interest payments under Section 80C from 2 lakhs to 5 lakhs and reducing home loan interest rates will make homeownership more accessible.”

To further encourage investment, the 10 crore cap on capital gains tax exemption should be lifted, and a uniform long-term capital gains tax across asset classes should be introduced. Additionally, he said that discontinuing the deemed rental income tax on the unsold inventory under Section 23(5) and increasing the safe harbour limit from 10% to 25% will align stamp duty rates with market realities, fostering higher transaction volumes.

“Budget 2025 must be bold, supportive, and reformist to unlock demand across segments and provide the impetus necessary for the industry to propel to the next stage and contribute to nation-building. Strategic action will stabilise the market and boost investor confidence and economic growth,” said Chintan Patel, Partner at Deal Advisory and Head of Building, Construction, and Real Estate at KPMG in India.

Specific focus areas need to be (a) Increasing home loan principal repayment under Section 80C and enhancing the limit for interest deductions under Section 24.

(b) Targeted Relief for First-Time Buyers: Provisions like Credit-Linked Subsidy Schemes (CLSS) for affordable and mid-income segments could bridge the affordability gap and increase housing penetration.

Under Section 24(b) of the Income Tax Act, home loan interest rebates are currently capped at 2 lakh. This limit should be increased to at least 5 lakh to enhance affordability and encourage more people to buy homes.

All about the PMAY scheme

The government introduced the Pradhan Mantri Awaas Yojana—PMAY (Urban)—in mid-2015. Data by the Ministry of Housing and Urban Affairs indicates 118.64 lakh homes have been sanctioned as of 20 January 2025. Nearly 90.22 lakh units have been completed, and nearly 112.50 lakh have been 'grounded'. In terms of the financials, nearly 200,000 Cr of central assistance has already been committed, as per data accessed by Anarock.

PMAY-U, MoHUA has launched PMAY-U 2.0 'Housing for All' Mission with effect from September 1, 2024, to implement in urban areas nationwide. The mission aims to construct, purchase, and rent 10 million houses at affordable costs to eligible beneficiaries through four verticals of the scheme.

These four verticals are Beneficiary Led Construction (BLC), Affordable Housing in Partnership (AHP), Affordable Rental Housing (ARH) and Interest Subsidy Scheme (ISS). As on date, 29 states and UTs have signed Memorandum of Agreement to implement PMAY-U 2.0.

Under the PMAY scheme, homebuyers could access loans of up to 25 lakh for properties priced at 35 lakh. However, with soaring property prices in metro cities like Mumbai and Delhi, developers argue that these limits are outdated and no longer practical.

In a major push to revive supply in the affordable housing segment, Union Finance Minister Nirmala Sitharaman, as part of Union Budget 2024-25, announced a sizable outlay of 10 lakh crore under the PM Awas Yojana Urban 2.0.

The Credit Linked Subsidy Scheme (CLSS) for the MIG category under the Pradhan Mantri Awas Yojana had previously offered a subsidy of up to 2.67 lakh to eligible beneficiaries.

For households earning 6–12 lakh annually, the MIG-I (middle-income group) category under the Credit Linked Subsidy Scheme (CLSS) had offered a 4% interest subsidy on home loans up to 9 lakh for homes priced at 40 lakh or below, with a maximum carpet area of 160 sq. m. (1,722 sq. ft.).

Real estate experts say the revival of the CLSS may boost the affordability of prospective homebuyers and increase the supply of affordable housing stock in peripheral locations of Tier 1 and Tier 2 cities recently connected with new infrastructure. Much of this affordable housing supply may come up along new infrastructure corridors such as highways, RRTS and the Metro.

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