Upcoming Union Budget: Sector in Focus – Affordable Housing

Learn about the significant allocations to the Pradhan Mantri Awas Yojana (PMAY), tax benefits, and public-private partnerships aimed at expanding access to affordable housing. Understand how these measures support the 'Housing for All' mission and present investment opportunities in the real estate sector.

One of the first decisions that the Union Cabinet took after the new government took office in June 2024 was to approve a proposal to build 3 crore new houses under the Pradhan Mantri Awas Yojana (PMAY). This has set the tone for the full Union Budget 2024 in July, where the expectation is that there will be many measures take to promote affordable housing across India.

This continues from the Interim Budget of 2024-25 ahead of the general elections when the Finance Minister Nirmala Sitharaman had reiterated the government’s commitment to addressing the need for affordable housing, a critical component of the government’s broader social welfare agenda. The focus continues to be on expanding access to housing for low and middle-income groups, promoting urban development, and driving economic growth through increased housing investments.

Credit-linked subsidy scheme

The expectations on the affordable housing front is that there will be substantial funds allocated to the Pradhan Mantri Awas Yojana (PMAY), which aims to provide affordable housing to millions of urban and rural poor. This increase in funding could be in the form of restarting the credit-linked subsidy scheme, higher allocation for subsidised housing, etc. under the 'Housing for All' mission.

Key Initiatives in the Sector

Public welfare, especially affordable housing, can be both lucrative as well as noble. With a large and diverse population in India, this sector is important not just for financial reasons but also for raising the socio-economic status of hundreds of millions of Indians. The initiatives previously announced and expected to continue in this space include:

• Pradhan Mantri Awas Yojana (PMAY):

  The interim budget had allocated ₹ 79,000 crore to the PMAY scheme, targeting the construction of 8 million new houses in urban and rural areas. This initiative aims to reduce the housing deficit and provide secure, affordable housing for low and middle-income families.

• Tax Benefits and Subsidies:

  The government proposed extending tax benefits for affordable housing projects. Developers can get additional deductions on affordable housing projects, and homebuyers can benefit from increased interest subsidies under the Credit Linked Subsidy Scheme (CLSS). But the additional interest subsidy scheme under the Income Tax Act ended a couple of years ago.

• Infrastructure Development:

  Enhancing infrastructure in peri-urban areas and smaller towns is a priority. This includes the development of basic amenities such as water supply, sanitation, and electricity, which are essential for making affordable housing projects viable and attractive.

Why the focus on affordable housing?

The emphasis on affordable housing in the lead up to the Union Budget is driven by the need to address the growing housing deficit at the lower end of the price curve. The reason there is a housing shortage across India is because there isn’t enough supply at various price points. But the main reasons the Centre is looking to boost affordable housing are–.

• Urban Development:

  The focus on urban development, particularly in smaller towns and cities, and peri-urban areas, is seen as a crucial step towards decongesting major cities and promoting balanced regional growth. This approach aims to create more liveable and sustainable urban environments.

• Economic Growth:

  Investing in affordable housing is expected to stimulate economic activity by creating jobs in construction and related industries. This, in turn, can boost local economies and contribute to overall economic growth.

• Social Welfare:

  Providing secure and affordable housing is a significant aspect of the government's social welfare agenda. Improved housing conditions can lead to better health, education, and economic outcomes for low and middle-income families.

For Investors

For investors interested in the affordable housing sector, the increased budget allocations and supportive policies can present significant opportunities. The focus on expanding affordable housing, particularly through the PMAY scheme and tax incentives, can drive demand and profitability for developers and related industries.

Investors can explore various avenues in the affordable housing sector, including direct investment in stocks of real estate developers involved in affordable housing projects, affordable housing finance companies, among others.

Conclusion

The upcoming full Union Budget is expected to carry forward the themes of the interim Budget 2024-25 with a continued focus on affordable housing, with increased allocations and strategic initiatives aimed at expanding access to housing for all. These efforts are critical for addressing the housing deficit, promoting inclusive urban development, and supporting economic growth. By enhancing the Pradhan Mantri Awas Yojana, providing tax benefits, and encouraging public-private partnerships, the budget can further create a robust and sustainable affordable housing sector.