Knight Frank seeks for revival of affordable housing & rental reforms

Hyderabad: As India prepares for the Union Budget FY 2026–27, global property consultancy Knight Frank India has urged the government to introduce targeted fiscal and policy measures to revive affordable housing, strengthen rental housing supply, and improve tax efficiency for homebuyers. The real estate sector contributes nearly 7 per cent to India’s GDP and employs over 70 million people, making it a critical driver of economic growth, job creation and urban development.

Knight Frank’s recommendations highlight a sharp decline in affordable housing demand. Homes priced below Rs50 lakh accounted for 54 per cent of total residential sales in 2018, but this share has dropped to just 21 per cent in 2025.

Despite overall housing sales remaining stable, affordable housing transactions declined 17 per cent year-on-year in 2025, largely due to rising property prices, limited disposable income and restricted access to formal credit.

To address this, Knight Frank has called for an expansion of benefits under PMAY 2.0. Currently, beneficiaries receive a 4 per cent interest subsidy on loans up to Rs8 lakh, subject to a maximum home value of Rs35 lakh. The consultancy recommends raising the house value limit to Rs75 lakh in major metro cities, aligning the scheme with present-day urban cost realities. It has also proposed increasing the home loan interest deduction under Section 24(b) of the Income Tax Act from Rs2 lakh to Rs5 lakh to stimulate demand, particularly in the affordable segment. The firm has also emphasised the need to incentivise rental housing, especially for low-income households for whom home ownership is not viable. Knight Frank suggested a 100 per cent tax exemption on rental income up to Rs3 lakh for homes costing up to Rs50 lakh, which could encourage investors to rent out currently vacant housing stock. Additionally, it proposed the use of surplus government-owned urban land—held by entities such as railways and defence—for high-density, long-term rental housing, with ownership retained by the government and units offered at regulated yields.

Further, Knight Frank has recommended tax holidays for purpose-built rental housing projects and central government viability gap funding for Affordable Rental Housing Complexes (ARHCs), particularly in Tier-II and Tier-III cities.

On taxation, the consultancy has called for easing long-term capital gains norms under Section 54 by extending the completion timeline for under-construction properties from three to five years and allowing a two-year window for purchasing a new home before selling an existing one.