Global real estate consultancy Knight Frank India has called for comprehensive fiscal interventions in the Union Budget FY 2026-27 to address structural challenges facing India's housing sector. The real estate industry, which contributes nearly 7% to India's GDP and employs over 70 million people, requires immediate policy support to revive affordable housing and strengthen the rental market ecosystem.

Affordable Housing Segment Shows Sharp Decline

The affordable housing market has experienced a significant downturn over recent years, with Knight Frank data revealing concerning trends in the sub-₹50 lakh segment:

The decline stems from rising home prices, reduced disposable incomes, and limited access to formal credit. Knight Frank argues that the current PMAY 2.0 scheme, offering 4% interest subsidy on loans up to ₹8 lakh for houses valued up to ₹35 lakh, no longer reflects urban market realities.

Key Recommendations for Housing Affordability

Knight Frank has proposed several measures to stimulate the affordable housing segment:

• Raise PMAY 2.0 house value limit from ₹35 lakh to ₹75 lakh or align with RBI's priority sector lending criteria
• Increase Section 24(b) home loan interest deduction from ₹2 lakh to ₹5 lakh to benefit first-time buyers
• Extend Section 54 completion timeline for under-construction properties from three to five years
• Relax home purchase timeline from one year to two years before selling existing property

Strengthening Rental Housing Ecosystem

The consultancy has identified the rental housing market as a critical area requiring intervention. Many sub-₹50 lakh homes purchased as investments remain vacant due to low rental yields, creating an underutilized housing stock.

Proposed Rental Market Interventions

Knight Frank recommends a multi-pronged approach to boost rental supply:

Sustainability and Green Building Initiatives

To promote environmentally sustainable construction, Knight Frank has called for central subsidies covering 20-25% of incremental capital expenditure on green building materials and technologies, with a cap of ₹1-2 crore per project. This initiative would build upon existing state-level incentives to create a comprehensive national framework for green construction.

Industry Leadership Perspective

Shishir Baijal, International Partner, Chairman and Managing Director of Knight Frank India, emphasized the urgent need for policy recalibration to address declining affordability and structural imbalances. He highlighted that while residential markets have demonstrated resilience, affordable housing continues to underperform due to elevated costs and insufficient end-user support. Baijal stressed the importance of developing a formal rental housing ecosystem to unlock underutilized stock, enhance labor mobility, and attract long-term institutional capital.

The recommendations come at a critical time when the housing sector faces mounting challenges despite its significant contribution to economic growth, job creation, and urban development across India.

Housing sales across eight major Indian cities experienced a marginal decline of 1% in 2025, totaling 3,48,207 units, as average property prices surged up to 19%, according to Knight Frank India's latest market analysis. The real estate consultant attributed the sustained demand despite price pressures to declining home loan interest rates, robust economic growth, and controlled inflation levels.

Market Performance Overview

The primary residential market data revealed mixed performance across key metropolitan areas, with some cities showing resilience while others faced significant demand contraction.

Regional Market Dynamics

Mumbai region maintained its position as the largest housing market, recording 97,188 unit sales with a modest 1% growth. Despite being the most expensive market at ₹8,856 per sq ft, the financial capital showed price appreciation of 7%. Bengaluru's market remained stable with 55,373 units sold, though prices increased significantly by 12% to ₹7,388 per sq ft.

Delhi-NCR faced the steepest sales decline of 9%, with only 52,452 units sold, while simultaneously experiencing the highest price appreciation of 19% to ₹6,028 per sq ft. This combination suggests significant affordability challenges in the national capital region.

Emerging Market Trends

Chennai emerged as the standout performer with 12% sales growth, reaching 18,262 units, accompanied by a 7% price increase to ₹5,135 per sq ft. Hyderabad demonstrated healthy demand with 4% sales growth to 38,403 units, though prices rose 13% to ₹6,721 per sq ft.

Industry Insights and NRI Participation

Knight Frank India CMD Shishir Baijal highlighted the sustained sales momentum despite weighted average price increases across markets. The report noted a significant shift in buyer demographics, with NRI contribution to housing sales rising substantially to 12-15% from single digits a decade ago.

Baijal expressed cautious optimism for 2026, citing potential interest rate reductions and improving affordability as key factors that could support residential sales growth. The consultant emphasized that despite fears of market correction, fundamental economic indicators remained supportive of housing demand throughout 2025.