As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2026-27 on February 1, India’s real estate sector stands at a critical juncture. While luxury home sales continue to soar and total property values reached approximately ₹6 lakh crore in 2025, a deeper crisis is unfolding beneath the surface. The affordable housing segment, once the backbone of India’s housing market, has shrunk dramatically, threatening to create a two-tiered system where homeownership remains a distant dream for millions of middle-income families.
Real estate industry leaders, including the Confederation of Real Estate Developers’ Associations of India (CREDAI) and the National Real Estate Development Council (Naredco), have submitted comprehensive recommendations to the government. Their collective wishlist focuses on three critical areas: affordability, finance accessibility, and housing supply expansion.
The Affordable Housing Crisis: Numbers Tell the Story
The share of affordable housing in total residential supply has declined sharply from 38 percent in 2019 to just 18 percent in 2025. This isn’t merely a cyclical downturn but represents a structural crisis that demands immediate policy intervention. The situation has become so severe that India’s urban housing shortage has ballooned to 9.4 million units and could reach 30 million by 2030 without corrective action.
The financial burden on homebuyers has become unsustainable. The EMI-to-income ratio for average homebuyers has climbed from 43 percent in 2020 to nearly 60 percent today, well beyond what financial experts consider sustainable levels. For middle-income families specifically, this ratio has jumped from 28 percent to 40 percent, driven by escalating home prices and interest rates.
Revising the Outdated Affordable Housing Definition
The centerpiece of realtors’ demands is updating the affordable housing definition, which has remained frozen since 2017. The existing limit of ₹45 lakh for the ‘affordable housing’ category and the associated 1% GST benefit do not correspond to the land and construction costs in most development areas.
Since 2017, land prices, construction materials, and labor costs have increased substantially, making the current cap unrealistic. Industry bodies are calling for city-specific revisions, proposing caps up to ₹85 lakh for the Mumbai Metropolitan Region and ₹75 lakh for other major metros, while maintaining existing carpet-area norms. Some experts suggest a uniform increase to ₹80-90 lakh across major cities to reflect current market realities.
This revision isn’t just about numbers—it’s about viability. Developers attempting to build within the outdated ₹45 lakh price cap find themselves locked out of critical tax benefits and struggling with margins that make projects financially unviable. Affordable housing projects typically yield margins of only 10-12 percent, compared to 25-30 percent or more for premium developments. Without policy support, developers naturally gravitate toward higher-priced projects, further shrinking affordable housing supply.
