Affordable Housing
Affordable housing in India referred to residential units meeting specified area and price criteria defined by government bodies — including RERA, income tax authorities, and GST Council — that qualified for preferential tax treatment, lower GST rates, and eligibility under schemes such as the Pradhan Mantri Awas Yojana (PMAY).
The definition of affordable housing varied across different regulatory and policy frameworks in India, creating complexity for both developers and buyers. The GST Council's definition, applicable for tax rate purposes, defined an affordable residential apartment as one with a carpet area of up to 60 square metres in metropolitan cities (Mumbai Metropolitan Region, Delhi NCR, Bengaluru, Chennai, Hyderabad, and Kolkata) or 90 square metres in non-metropolitan areas, AND a value not exceeding Rs 45 lakh. Under-construction affordable housing units meeting these criteria attracted GST at 1 percent (without input tax credit), compared to 5 percent for non-affordable housing.
The income tax definition of affordable housing under Section 80IBA (deduction for profits from affordable housing projects, a developer-side incentive) used somewhat different parameters — primarily the carpet area criterion and project approval timelines. For homebuyers, the tax incentive under Section 80EEA provided an additional deduction of Rs 1.5 lakh on home loan interest (over and above the Rs 2 lakh deduction under Section 24(b)) for first-time buyers of affordable housing with a stamp duty value not exceeding Rs 45 lakh. This incentive was available for loans sanctioned between April 2019 and March 2022 (subsequently extended in budgets).
The Pradhan Mantri Awas Yojana (PMAY) was the government's flagship affordable housing scheme, launched in 2015 with the ambitious goal of Housing for All by 2022. PMAY had two components: PMAY-Urban (for urban beneficiaries) and PMAY-Gramin (for rural beneficiaries). PMAY-Urban provided credit-linked subsidy scheme (CLSS) benefits — upfront interest subsidies of up to Rs 2.67 lakh on home loans for eligible beneficiaries in EWS (Economically Weaker Section), LIG (Lower Income Group), and MIG (Middle Income Group) categories. By 2023–24, PMAY-Urban had sanctioned and completed millions of housing units, though the original 2022 target for completing all sanctioned units remained only partially achieved.
From a real estate market perspective, affordable housing was the largest volume segment by unit sales in India, particularly in Tier 2 and Tier 3 cities and the periphery of major metros. However, the segment had faced structural challenges from rising land and construction costs. Between 2019 and 2024, the Rs 45 lakh price cap for the GST affordable housing definition remained unchanged even as construction costs and land prices rose significantly, effectively pushing many units that might previously have qualified out of the affordable category. Developers of truly low-cost housing increasingly found the economics challenging without direct land subsidy or government support.
For investors, listed affordable housing developers — primarily Affordable Housing Finance Companies (AHFCs) such as Aavas Financiers, Home First Finance, and Aptus Value Housing — represented a distinct segment within the broader housing finance space, targeting first-time homebuyers in lower income brackets with smaller ticket sizes (average loan size of Rs 10–15 lakh), typically rural and semi-urban borrowers, and characterised by strong asset quality, low non-performing loans, and high growth potential given India's structural housing deficit.