India’s residential real estate market has entered 2026 in a far more mature and calibrated phase than many headline narratives suggest. The post-pandemic demand frenzy has clearly calmed down, but it would be wrong to see this as a slowdown. The market is really going through a structural rebalancing from volume-led growth to value-led absorption, from speculative churn to end-user selectivity, and from policy-driven sentiment to balance-sheet-driven discipline.

In this context, the Union Budget 2026 is very important for homebuyers, not because it can create demand, but because it can close the gap between housing policy and housing reality.

It is clear what the main problem is today. The number of transactions in the top cities has gone down, but the value of those transactions has gone up. In 2025, home sales fell by about 14% year over year in the top seven cities. However, the total value of homes sold rose by about 6%, surpassing the ₹6 lakh crore mark.

This difference is not just noise; it shows a clear move toward bigger homes and better quality housing. So, for people buying homes, Budget 2026 won’t be about big giveaways. It will depend on whether fiscal policy recognizes this change and makes affordability, financing, and rental supply important again in a market where costs have permanently gone up.

Prices shoot up

From a macroeconomic point of view, the situation is pretty good. India is still one of the fastest-growing large economies. According to government and multilateral projections, real GDP growth for FY25 and FY26 is expected to be between 7.2% and 7.4%.

Real estate is still a big part of this growth story, adding about 7–8% to GDP and supporting more than 70 million jobs directly and indirectly. Long-term forecasts show that the sector’s share of GDP could rise significantly over the next ten years as cities grow and become more formal.

But this macro strength has not made it easier for everyone to get housing. Prices for land in cities, building costs, and costs related to following the rules have all gone up much faster than household incomes. From 2021 to 2025, the average cost of building is expected to rise by about 35–40%, mostly because of rising material and labor costs.

Most housing policy thresholds, like those for tax breaks or definitions of affordable housing, are still based on ideas that were made almost ten years ago. As a result, the gap between who housing policies are meant to help and who actually buys homes in cities is getting bigger.

A quiet split

The biggest change in the last few years has been how sharply demand has split. More than half of all sales in 2018 were for homes that cost less than ₹50 lakhs. By 2025, their share had dropped to about one-fifth. On the other end of the scale, homes that cost more than ₹1 crore now make up about half of all home sales in major cities, up from less than 20% seven years ago.

It is not because people no longer want to own a home that they can afford; it is because the economics of supply have changed. Developers have moved toward areas where they have more control over prices and more certainty about how well they will do because their costs are going up and their financing is getting stricter.

There have also been healthier changes in inventory levels since this change. Even though the amount of unsold stock has gone up slightly, the average time it takes to sell a home in major cities is still less than six quarters. This is much better than the eight- to ten-quarter overhangs that have happened in the past.

This shows that demand has not died out, even though it has become pickier. People who want to buy a home are buying fewer homes, but they are buying better ones that will last longer.

Redefining what is affordable

In this situation, the most important thing to expect from Union Budget 2026 is a change in what ‘affordable housing’ means. Current price caps, especially in Tier I cities, do not have much to do with the prices that are currently on the market.

For a lot of first-time and middle-income buyers, this has meant that they can’t get benefits that were meant for them. According to estimates from the industry, changing the limits for affordable housing to a more realistic range that is often talked about between ₹75 lakhs and ₹90 lakhs in urban markets could immediately increase the number of buyers who qualify without changing the prices in the market.

This kind of change wouldn’t just be for show for homebuyers. It would give people in big cities who don’t currently have access to lower GST rates, interest subventions, and scheme-linked incentives back access to them.

This could also get developers to start building more homes for middle-income people again on a large scale over the next three to five years. This would make the supply more diverse and cut down on the number of launches at the top end.

The real cost of borrowing and tax efficiency

When it comes to home loan taxes, people have realistic expectations instead of hopeful ones. The deduction for home loan interest under Section 24(b), which is limited to ₹2 lakhs, has become less and less useful in expensive urban markets.

Even after recent monetary easing, the average ticket size and loan value mean that most salaried buyers’ interest payments are much higher than this limit. An upward revision would definitely help, but the bigger problem is how tax breaks affect monthly costs.

People who want to buy a home today are very aware of their cash flow, not just their yearly savings. A 100 basis point drop in home loan interest rates, like the ones that happened after the Reserve Bank of India cut the repo rate several times in 2025, only lowers the EMI on a ₹50 lakh, 20-year loan by less than ₹1,000 a month.

Tax changes that really raise disposable income after EMI, especially for middle-income families, are likely to have a bigger effect on behavior than just cutting
the headline rate.

One of the less talked about but more important changes in policy talk leading up to Budget 2026 is the growing focus on rental housing. As home prices rise, more urban households will stay renters for longer periods of time.

But India’s rental market is still informal, broken up, and not enough supply in the price-sensitive areas. Proposals that encourage long-term rental supply by giving tax breaks on small rental incomes or helping purpose-built rental housing stay in business could have big effects on other areas.

This is important for people who want to buy a home, even if they don’t plan to. A healthier rental market makes it easier for people to move around for work, keeps entry-level housing ecosystems stable, and lowers speculative pressure on ownership markets. In the next five years, cities that are able to formalize their rental supply will probably see prices rise more evenly and better absorption across all segments.

Buyer flexibility and transaction timelines

Another reasonable expectation from Budget 2026 is that the rules for capital gains and reinvestment will be made clearer. Residential projects these days are bigger, more complicated, and often take longer to finish than they did in the past.

Tax systems that assume perfect delivery schedules unintentionally hurt real home buyers and long-term investors. Extending some completion-linked deadlines would cut down on forced selling, make upgrades easier, and make taxes more in line with how things actually work.

This does not boost demand; it makes things easier. For homebuyers who are going through changes in their lives, this kind of flexibility can be just as helpful as direct financial incentives.

Thinking about the future

In the next three to five years, India’s housing market is unlikely to see the same rapid growth in volume that it did right after the pandemic. Instead, it is moving toward a more stable path, with prices rising by about 5% each year and organized, well-capitalized developers taking over more and more of the supply. Tier II cities will play a bigger role in increasing demand because of infrastructure growth and the spread of jobs.

Union Budget 2026, in this sense, is less about starting a new cycle and more about getting back on track. For people who want to buy a home, the most important results will be those that quietly bring definitions up to date, reduce friction, and make sure that policies match what happens in real life in cities. In a market that has learned the value of discipline, facts will matter much more than words. – editor@nrifocus.com

The writer is Director,
Eros Group.