Why slowing, uneven growth in housing sector indicates subdued demand

Indian Express

05-07-2025

India's housing sector may be booming on the surface, but it's increasingly becoming a market for the few. Even as home sales hit a 12-year high of 3.5 lakh units in 2024, much of the growth came from the premium segment, and was indicative of a deep divide in the sector: while developers target affluent buyers, homeownership is increasingly out of reach for a large section of the population.
But even as sales in India's top-seven cities fell 24 per cent year-on-year in the first half of 2025 and new launches dropped 13 per cent, developers continued with their premium push, according to real estate services firm Anarock. In April-June, the share of new launches priced above Rs 1.5 crore increased to 46 per cent from 43 per cent in the previous quarter, while the share of affordable homes — those priced below Rs 40 lakh — remained steady at 12 per cent.
While affordable metrics have improved in 2025 owing to the 100 basis points (bps) of repo rate cuts by the RBI since February, the gain has been offset by rising property prices, especially in cities like Kolkata, Chennai, and Ahmedabad.
K-shaped growth
The tilt in housing supply toward the upper end is evident in the segment-wise composition of new launches. As per Anarock, in April-June, the mid (Rs 40 lakh-80 lakh) and premium segments (Rs 80 lakh-1.5 crore) together made up 42 per cent of new supply, down from 45 per cent in January-March, as the share of homes priced above Rs 1.5 crore rose, indicating a bias toward higher-value projects.
This is not to say that there are no buyers for affordable homes. According to real estate consultancy Knight Frank India, homes priced below Rs 1 crore accounted for 54 per cent of total sales in January-March, with almost a quarter of total sales coming from homes priced below Rs 50 lakh. However, this was down from 60 per cent in Q1 of 2024.
As a result of the shift in supply, 52 per cent of housing inventory at the end of March were either high-end (Rs 80 lakh to Rs 1.5 crore) or luxury and ultra luxury (above Rs 1.5 crore), while homes prices below Rs 40 lakh made up just a fifth of total stock, according to Anarock.
It is no surprise then that the mood among buyers is not upbeat, with property selling platform Magicbricks' Housing Sentiment Index (HSI) falling to 138 in April from 155 in September 2024. 'The Rs 3.5 crore-5 crore and Rs 2.5 crore-3.5 crore segments recorded the highest HSI, driven by buyers with Rs 1 cr+ annual income,' Magicbricks said.
Affordability question
Except Delhi NCR, buying a home has seemingly become easier so far in 2025 in seven of the eight major cities in the country, as per the Knight Frank's Affordability Index. For instance, the index for Mumbai improved to 48 per cent in the first half of 2025 from 67 per cent in 2019 and 50 per cent in 2024, implying that a homeowner now needs to spend 48 per cent of their income to finance the Equated Monthly Instalment. But even at 48 per cent, the affordability index for Mumbai is only a shade under Knight Frank's threshold of 50 per cent it considers as unaffordable.
Other cities such as Kolkata and Chennai saw a marginal 1-percentage-point improvement in affordability to 23 per cent and 24 per cent, respectively, while the index for Ahmedabad improved to 18 per cent from 20 per cent. However, prices are rising faster in these smaller centres. Data from the RBI's All-India House Price Index shows that housing prices increased 3.1 per cent year-on-year in January-March at the national level. Cities such as Kolkata, Chennai, and Ahmedabad, however, saw prices rise at a faster clip of 8.8 per cent, 7.2 per cent, and 3.8 per cent, respectively.
Weakening demand
The situation has become sufficiently worrisome for policymakers to address it, with home loan growth, often a bellwether of the economy, having slowed down. Excluding the impact of the merger of HDFC Bank with Housing Development Finance Corporation, latest RBI data shows home loans rose 13.8 per cent year-on-year as of May 30, slower than the 19.9 per cent growth recorded a year earlier. Loans to housing finance companies, meanwhile, were down 6.8 per cent over the same period, compared to a 3.8 per cent growth recorded at the end of May 2024.
'Urban demand and demand for housing, vehicles, and other goods that are sensitive to interest rates are not at a level we would like them to be. Due to this, private capex is not showing robust signs of revival,' Ram Singh, one of the external members on the RBI's Monetary Policy Committee, told The Indian Express on June 25.
(The writer is an intern with The Indian Express)