Mumbai, one of India's bustling metropolises, is witnessing a growing crisis in the affordable housing sector. Housing finance companies (HFCs) are advocating for the government to reintroduce fiscal and regulatory incentives in the upcoming Union budget for 2026-27. They are emphasizing the need for a four-year tax holiday and an increase in floor space index (FSI) for developers dedicated to constructing homes for the economically weaker section (EWS) and low-income group (LIG) households.
The initial phase of the Pradhan Mantri Awas Yojana (PMAY) had granted developers a 100% income tax exemption on profits from approved affordable housing projects. This beneficial scheme, however, concluded in March 2022, and its absence under PMAY 2.0 has raised concerns among mortgage lenders, prompting them to call for its reinstatement. An official noted that, "The tax exemption under PMAY 1.0 was pivotal in enhancing project viability. In the absence of similar incentives, developers find it challenging to make affordable housing projects financially feasible."
Across the country, builders have significantly reduced their activities in the affordable housing segment over the past few years. This decline can be attributed to escalating land prices, soaring costs of construction materials like cement and steel, and increased labor charges, which have further tightened the already thin profit margins. Additionally, delays in approvals and the cessation of government incentives have made the economics of these projects even more precarious. As a result, many developers are increasingly shifting their focus towards mid-income and premium housing, where profit margins are healthier and cash flows more reliable, leading to a dramatic slowdown in new affordable housing supply despite persistent demand from first-time homebuyers.
The situation is concerning, as many potential homebuyers are being priced out of the affordable housing market due to rising project costs. While demand continues to be robust, the increasing financial burden on developers is making it increasingly difficult to meet the needs of those looking for budget-friendly housing options. Reintroducing tax holidays and other incentives could be a critical step in reviving the affordable housing segment, ensuring that it remains accessible for the majority of citizens who aspire to own their homes.
In conclusion, with a strong push from mortgage lenders, the hope is that the government will recognize the need for renewed support in the affordable housing market. This could facilitate improved project viability, stimulate supply, and ultimately provide much-needed housing solutions for the economically disadvantaged segments of society.