India’s real estate may not be a boom that is about to crash, but it is most definitely slowing down — stagnating, even. This comes as a direct result of the breakneck speed of growth the post-pandemic years witnessed.
Escalating land prices, rising construction costs, and inflationary pressures have significantly eroded the viability of affordable housing projects for developers, according to a report unveiled this week by Housing.com, a real estate tech platform.
Real estate activity was on an uptick in the years following the pandemic when prices shot up. While this had come as a relief to a sector that was reeling for nearly a decade due to stagnant prices, legislations like RERA, the economic slowdown of 2018-’19 followed by the lockdowns and pandemic lull, there was also a particular pattern of premium and luxury projects finding more takers, perhaps a result of the K-shaped growth trajectory the Indian economy took after the pandemic and the economic reforms undertaken during that time period. This had led many realty players to focus on premium offerings, where there suddenly seemed to be a lot of ready buyers for premium offerings with higher mark-ups.
This saw prices going up and up in most markets, particularly with areas like Gurugram seeing prices shooting through the roof.
The stark contrast is particularly evident in the Delhi NCR market, where, according to Akshay Shetty, research analyst with Mirae Asset Share Khan, “prices rose 20 to 24 per cent in July to September in the luxury and premium segments, driven by strong end-user demand and major infrastructure and connectivity upgrades.”
However, that has also meant putting off a vast swathe of middle-income buyers, who found the rising cost just too much to take. Now, it seems, realty players may just have shot themselves in the foot with all that glut, having focused too much on premium and luxury categories and then pricing them out of the affordability range of most prospective home buyers.
“The price rally over the past half-decade has dampened sales in the affordable housing segment, a category vital for the sector’s long-term sustainability and growth. While demand and supply in the premium and high-end segments remain robust, supported by strong consumer sentiment, supply in the affordable housing category has been constrained despite steady underlying demand,” said Praveen Sharma, CEO, REA India (Housing.com), which did the study.
Avneesh Sood, director of Eros group, agrees. “Rising prices have tested the purchasing power of middle and upper-middle-income buyers, prompting a shift toward compact or rental housing.
What is the solution? “What India needs now is both demand-sensitive policy and supply-led pragmatism,” said Pyush Lohia, director of realty player Lohia Worldspace, adding, “Policymakers have signalled intent — new central initiatives and the PMAY-U 2.0 framework aim to scale affordable delivery and expand rental and purchase assistance.”
Financing would be another major area for policymakers to support. Better access to long-term loans for lower and middle-income home buyers, with targeted credit lines for developers and risk-sharing instruments, could help create supply without destabilising the margins of builders.
“(Buyer) confidence matters. When buyers see accessible finance, meaningful supply and credible rental options, sentiment will shift from waiting for a ‘correction’ to participating in a more inclusive market,” said Lohia, “The challenge is solvable — but only if industry, regulators and lenders act in concert to rebalance supply, expand finance, and treat rental and affordable housing as priorities rather than afterthoughts.”
Chipped in Sood of Eros, “A balanced policy approach, focused on timely approvals, rationalised duties, and incentives for mid-income supply, will be essential.”
Interestingly, despite the stagnation in prices and drop in demand in at least some markets, no one is ringing the alarm bells, yet — even the most dire predictions are for a standstill, and not a crash. As Sahil Verma, COO of Shray Projects, put it, “I anticipate the price growth to slow down and stabilise within the next several quarters as the market takes in new gains. This would be triggered by a softer interest-rate environment, which would open deferred demand and would make it more affordable to true end-users.”
