By Sandeep Mangla

India's housing finance system is at a crucial point as the 2026 Budget looms, where urbanisation is the main factor by which the demand for low-cost housing is being pushed up. The demand is, however, not being met due to stagnant real incomes and the high cost of interest.

The housing sector, which has been a significant contributor to GDP through construction and other linked industries, requires some deliberate fiscal measures that are targeted to help the middle and first-time buyers who are priced out of the market.

The Government, through subsidies, tax credits, and changes in credit policies, can initiate a cycle of homeownership, absorption of inventory, and the resulting economic multiplier effects.

Housing Subsidies: Why Affordability Still Fails in Big Cities

The existing programs, such as the Credit Linked Subsidy Scheme (CLSS) under PMAY-U, have provided considerable interest subsidies but the static income eligibility limits have not been changing with the price increases in the different city divisions.

The 2026 Budget might allow for the implementation of dynamic indexing of the thresholds for loan and property value to CPI-housing and regional benchmarks that would ensure that the subsidies remain applicable to the fast-growing metros of Bengaluru and Pune.

For the EWS/LIG segments, the government may continue to allow twenty years for the subvention but just for the initial buyers in the MIG-I category, it would be better to gradually increase the rates. Such measures would lead to a reduction of 15-20 per cent in the effective EMIs without increasing the property values.

Home Loan Reforms: How Liquidity and Longer Tenures Can Cut EMIs

Housing loans constitute more than 14 per cent of bank credit, and thus, systemic liquidity is still the main cause of the problem with small-ticket originations that are worth less than Rs 50 lakh. A Housing Liquidity Facility of Rs 25,000 crores that is wholly devoted to the issue and that consists of NABARD refinance, multilateral funds, and zero-coupon bonds might reduce the cost of the loan funding to the lenders and, consequently, lead to effective rates lower than 7 per cent for the affordable segments.

In the same way, requiring step-up EMI structures and 30-year tenures for salaried first-timers would be in line with lifecycle income curves, and thus, the job target being done for gig workers and young professionals in Tier-2 towns.

Tax Breaks: How Deductions Can Make Home Loans Affordable

More than half (60 per cent) of home-buying decisions in the Rs 40-80 lakh category are determined by the incidence post-tax. Besides, the increase of the Section 24(b) interest-deduction limit to Rs 3 lakhs for first loans and the addition of a new Rs 1.5 lakh sweetener for PMAY-eligible units have the potential to almost double the savings without causing an erosion of government revenues in general.

A time-bound increase in principal repayment under 80EEA/80EEB for stalled-project completions could speed-up secondary sales while rationalising notional rent taxation for self-occupied second homes would alienate the lock-in effects for upgrading families.

Housing Finance Reforms: Faster Home Loans Through Digital Credit

The Account Aggregator frameworks and Open Credit Enablement networks now allow cash-flow-based scoring for informal earners, but housing lenders have not yet fully adopted this technology.

Budget 2026 allocations for a “Housing Credit Passport”, which would be the integration of ITR, GST, and UPI data, can set eligibility for 40 million underserved borrowers with a turnaround from 30 days to less than 72 hours.

Priority SLR for AI-underwritten portfolios would be a kind of incentive that would be the driving force behind fintech-HFC partnerships and would bring about the democratisation of access in peri-urban areas.

Green Housing Finance: Affordable Homes With Lower Borrowing Costs

In line with net-zero commitments, green mortgages at 50 basis points below the prime rate could get 100 per cent risk weight exclusions, thereby fostering retrofits and developments with EV charging stations.

A Rs 5,000 crore Green Affordable Housing Fund, which would be managed by SIDBI, would not only provide the carbon-neutral projects with the necessary certifications but also be the source of their financing, thereby placing India’s small to medium-sized developers at the supply chain partner’s spot for global OEMs.

So, Budget 2026 can help lay the foundation to change housing finance practices from a volume-oriented approach to an affordability engine, thereby triggering 8-10 million annual units and making household balance sheets more resilient to inflation. The strategic power through these instruments will turn real estate into an inclusive infrastructure rather than an elite asset class.

(The author is Managing Director, Forteasia Realty Pvt. Ltd)