Finance Minister Nirmala Sitharaman is scheduled to present Budget 2024 today, and the real estate industry anticipates that the government will prioritize affordable and middle-class housing in the plan. To increase affordability, it has advocated for an enlargement of the definition of affordable housing, tax breaks for homeowners, and financial incentives for builders to build more affordable housing.

More tax breaks are urgently needed for buyers and developers looking to build affordable and middle-class housing projects. Real estate experts believe that the government should increase the annual deduction limit for interest paid on home loans from the current Rs 2 lakh to Rs 5 lakh, as this will boost the demand for housing.  

1. Raise the interest payment deduction cap 

To stimulate housing demand in the face of rising housing prices and mortgage rates, the National Real Estate Development Council (Naredco), a body that represents builders, has recommended that the tax exemption on interest on loans for self-occupied property be raised to Rs 5 lakhs in the upcoming budget from Rs 2 lakhs currently.

Developers have also sought tax breaks to increase the supply and demand for affordable homes. According to NAREDCO, the maximum deduction for interest on loans for self-occupied property is Rs 2 lakh, as stipulated in Section 24 of the Income Tax Act.

2. Permit builders to pay GST at a discounted rate instead of an input tax credit.

NAREDCO has also urged the government to allow builders to pay GST at a concessional rate without an input tax credit (ITC) or a higher tax rate claiming an ITC. The GST rate is 1% without ITC for affordable housing units and 5% without ITC for other residential units. Developers would save money on taxes and have improved cash flows if they could select between higher rates ITC and concessional rates without it, resulting in advantages for end users.

In its wish list for Budget 2024, the Confederation of Real Estate Developers Associations of India (CREDAI), a body that represents real estate developers, suggests that the government consider granting unlimited interest deductions for self-occupied property or raising the deduction limit to Rs 5 lacks for homebuyers.

3. Encouragements for reasonably priced  housing

The present growth trajectory is biased in favor of luxury and mid-range housing. Affordable housing is still in short supply, so higher-priced homes can’t sustain this momentum despite the unique housing needs of India’s lower-class populations. According to experts, the government should concentrate on offering more subsidies for mid-range and affordable housing.

According to ANAROCK Research, following COVID-19, the sales share of affordable housing fell sharply, from over  26% in 2022 and over  38% in 2019 to about 20% in Q1 2024. This segment’s share of the total housing supply in the top 7 cities decreased to 18% in Q1 2024 from nearly 40% in 2019 due to low demand. In FY23-24, total sales hit a record high of roughly 4.93 lakh units, despite the launch of 4.47 lakh units.

Anuj Puri, Chairman of ANAROCK Group, states that many interest stimulates previously provided to affordable housing builders and consumers have expired over the past two years. High-impact measures like tax breaks are needed to revive this significant market sector. This will help buyers by bringing down the cost of homes, and developers by motivating them to focus more on building affordable housing.

PMAY Credit-linked Subsidy Scheme

To encourage first-time purchasers of reasonably priced homes throughout cities, the EWS/LIG program, which was set to expire in 2022, ought to be brought back. This will stimulate demand in this market segment once more. CLSS was previously available for housing loans to EWS/LIG buyers in new building projects and for adding rooms, kitchens, toilets, etc. to existing dwellings, subject to criteria specified under government guidelines. According to Puri, if the qualifying requirements are met, all “kaccha” homes being converted into “pucca” ones may also be eligible for this subsidy under PMAY (Rural).

Provide developers of affordable housing a 100% tax holiday once more. 

To boost supply and incentivize developers to build more affordable housing, the government may bring back the “100% Tax Holiday” benefit previously provided under section 80-IBA of the Finance Act, 2016. The profits from developing and constructing affordable housing projects were subject to significant tax relief under this section. 

Change the definition of affordable to include more homebuyers and expand the benefits of additional deductions. 

The Ministry of Housing and Urban Affairs states that a buyer’s income, cost, and size all play a role in determining affordable housing. In large cities, a house or apartment that fulfills the requirements for affordable housing can be valued up to Rs 45 lakh, and in non-metropolitan areas, it can have a carpet area of up to 90 square meters. Loans from banks are given to individuals to help them build houses or buy apartments based on the central bank’s definition.

The government must carefully consider how to modify home prices within the affordable housing budget, considering the unique characteristics of each city’s real estate market. The size of the units is 60 sq.m. The carpet area is appropriate according to the current definition. However, most cities cannot afford the prices of units, which can reach Rs 45  lakh.

For instance, a budget of Rs 45 lakh doesn’t matter in a metropolis like Mumbai. It would have to be raised to Rs 85 lakh minimum. The budget should be increased to Rs 60-65 lakh in other cities. According to Puri, more homes would be eligible for the affordable price tag with such price revisions, allowing more buyers to take advantage of government subsidies and lower GST rates at 1% without ITC.

It is also necessary to revise the definition of an affordable residential apartment, which presently includes requirements for carpet area and a price cap. Only the carpet area condition should be kept, NAREDCO advises, with no upper price limit. A greater percentage of the lower and middle class could purchase homes thanks to this adjustment, which would account for rising land prices in major cities and expand the benefits of affordable housing to more projects.

The criteria for affordable housing are based on the cost of the property (Rs 45 lakh), carpet area (60 to 90 sq.m), and income of the homebuyer (EWS/LIG), according to Anshuman Magazine, chairman and CEO-India, South-East Asia, Middle East & Africa, CBRE. The government should consider extending the cost, size, and income restrictions to, prove the scheme’s inclusivity. Given that capital values in larger metropolises (Mumbai, Delhi-NCR) can be significantly higher than in other cities, the government should think about raising the size criteria for metro cities to 90 sq.m. and establishing three to four brackets of unit sizes and prices to define the eligibility criteria depending on city/state dynamics.

Boost the amount of money allotted to PMAY  

Along with the recent announcement from the Cabinet to provide financial support for the construction of an additional three crore rural and urban houses under the scheme, the government should consider increasing the budgetary allocation towards the Pradhan Mantri Awas Yojana (PMAY) compared to the previous year. This shows the government’s continued commitment to supporting the affordable housing sector. The prompt implementation of the scheme possesses considerable potential to stimulate the industry even more.

According to Magazine, “We also eagerly await further details concerning the PMAY-Urban scheme, given the announcement made about the government’s plan to launch an initiative to help deserving sections of the middle class living in rented accommodations, slums, chawls, and unauthorized colonies to buy or build their own houses in the Interim Budget 2024-25.”

Additionally, the government offered a 100% tax deduction for profits and gains from the business of creating and constructing affordable housing projects under Section 80IBA. The tax holiday did, however, end in 2022. According to the magazine, developers of affordable housing projects would gain from the resuscitation of the program because these projects usually have narrow profit margins.

4. Utilize land lots that the government and public sector businesses have available. 

The government or public sector organizations have access to multiple underutilized or inadequately utilized land parcels. These might include Port Trust property, railroads, abandoned military land, etc. When the land and necessary permits are obtained, we advise unlocking these land lots and forming partnerships with reputable private developers to build affordable housing. These land lots might also be for industrial parks and associated infrastructure. This will help the government take advantage of the operational efficiencies of the private sector while also lowering the risk associated with development,” he stated.

Magazine went on, “We also implore the government to provide a comprehensive framework regarding changes in land usage.” to expedite construction and facilitate land acquisition.

CREDAI National Chairman and Gaurs Group CMD Manoj Gaur states, “The real estate industry has set high expectations for the upcoming budget.” First and foremost, the goal of resuming the interest subsidy program is to support the housing industry as a whole. Secondly, we are also seeking a redefinition of affordable housing. The present limit should be increased from 90 sq meters, and Rs 45 lakhs in space and pricing, respectively. These will be a much-needed intervention as a considerable demand exists in the affordable housing segment. Lastly, we look forward to announcements on GST input credit to stimulate growth and foster a more resilient real estate environment.”

Over the past three years, there have been fluctuations in the supply and demand for affordable homes in tier 1 and tier 2 cities, according to Dhruv Agarwala, Group CEO of Housing.com and PropTiger.com.

The forthcoming budget should prioritize reinvigorating the supply and demand for residential properties within the Rs15-75 lakh per unit price range. Potential homebuyers could be effectively encouraged by the introduction of interest subsidy programs” he said. 

Agarwala stated that the government could strategically use its vast land banks in collaboration with private developers to increase supply by providing capital and land at discounted prices.

5. The condition of the property market

Director of County Group Amit Modi said, “One of the most persistent demands the sector emphasizes is the need to grant industry status to enable easier access to low-cost financing, which benefits consumers directly. “Moreover, timely project completion and cost-effectiveness depend on the implementation of single-window clearance.”

Real estate experts said that the sector should also be classified as infrastructure.

By 2030, the real estate industry will likely account for 13-15% of the Indian GDP. As such, stakeholders have long demanded that the sector be granted “infrastructure” status. This could significantly reduce the cost of borrowing for developers and increase the availability of institutional credit, thereby stimulating growth and investment. According to the report, “Standardizing the definition of affordable housing can also enhance uniformity in financing requirements amongst institutions and possibly make it easier for eager homebuyers to obtain credit.”