According to a report released on Monday, the demand for affordable housing in Indian cities decreased from a significant 39% in 2018 to 26% in the previous year, as the impact of Covid-19 was felt in this segment of the market.

The supply of affordable housing also dropped significantly. According to a consumer sentiment survey conducted by property consultant Anarock in 2022, there is a significant amount of unsold affordable housing in the top seven cities. Out of the total 6.30 lakh unsold units, affordable housing constitutes over 27%. The report highlights that the upcoming Union Budget presents a chance for the government to revitalize this segment, as demand has significantly declined.

One potential solution to revive demand in the affordable housing segment is to revise the definition of “affordable houses” by increasing the maximum price eligible for tax rebates, which is currently set at Rs 45 lakh.

Anuj Puri, chairman of Anarock Group, suggested that the Budget can help by adjusting the price ranges for homes that qualify as affordable housing based on the unique market conditions of different cities. Currently, the units eligible for various affordable housing benefits have a minimum size of 60 square meters on the carpet area. While this requirement is suitable, the uniform price ceiling of up to Rs 45 lakh does not match the market conditions in most major cities.

According to the report, the Rs 45 lakh limit to define affordable housing is too low for cities like Mumbai and should be raised to Rs 85 lakh or higher. For other major cities, the price range should be increased to Rs 60-65 lakh.

The report further noted that this adjustment would make more homes eligible as affordable housing, allowing a larger number of homebuyers to take advantage of benefits such as a reduced GST rate of 1% without input tax credits, as well as other government subsidies.

Puri advocates for an increase in the tax rebate on housing loan interest, under Section 24 of the Income Tax Act, from the current Rs 2 lakh to a minimum of Rs 5 lakh to boost housing demand. Other real estate developers in India have also expressed a similar view.

A report states that the availability of affordable housing has declined since 2018. In 2022, out of 3.58 lakh units launched in the top 7 cities, only 20% were classified as affordable housing. This is a significant drop from 2018 when affordable housing had a 40% share of 1.95 lakh units launched.