A Tale of Two Markets
India's residential real estate sector is witnessing a stark divergence. While the overall market appears resilient, this strength is almost entirely concentrated in the premium and luxury segments. According to a recent report from CareEdge Ratings,
there is a structural shift underway, with developers increasingly focusing on high-end properties. In the first quarter of 2022, homes priced below ₹1.5 crore made up a dominant 85% of new launches in India's top seven cities. By the first quarter of 2026, that share had plummeted to just 47%. In contrast, the segment for homes priced between ₹1.5 crore and ₹4 crore has surged, capturing 44% of new launches in early 2026, up from only 14% four years prior. This isn't a story of falling demand for homeownership, but a fundamental change in what is being built and sold.
The Squeeze on Profit Margins
For developers, the economics of affordable and mid-range housing have become incredibly challenging. Rising input costs are a primary culprit. The prices for essential construction materials like cement and steel have climbed significantly, with overall construction expenses rising by as much as 34% between 2021 and 2025. This is compounded by soaring land acquisition costs in major urban centres. These escalating expenses erode the already thin profit margins on lower-priced homes. Developers find it difficult to pass these increased costs onto budget-conscious buyers, who are highly sensitive to price changes. As a result, building premium homes, where affluent buyers are less sensitive to inflation and higher margins can absorb costs, has become a more viable and attractive business strategy.
Changing Buyer Aspirations Post-Pandemic
The market shift isn't just a supply-side story; buyer preferences have also evolved. The post-pandemic world has placed a new premium on larger living spaces, better amenities, and healthier environments. Many potential homebuyers, having spent more time at home, are now willing to stretch their budgets for properties that offer more room, home offices, and wellness features like green spaces and clean-air systems. This has fueled demand in the premium segment, with affluent domestic buyers and Non-Resident Indians (NRIs) actively seeking higher-quality, more spacious homes. Developers are responding to this clear demand signal, channeling resources into projects that cater to these aspirational buyers rather than the traditional, cost-focused market.
Affordability Under Pressure
While interest rates have remained relatively stable through 2026, the cumulative effect of earlier rate hikes and steadily rising property prices has created affordability pressures, particularly for the mid-income segment. A slowdown in sales was noted in major markets like Pune, Delhi-NCR, and the Mumbai Metropolitan Region, attributed to these affordability concerns. Although the luxury segment remains resilient, demand in the affordable and middle-income brackets has softened. Buyers in the sub-₹1.5 crore category are more affected by changes in home loan EMIs and overall economic uncertainty. Even a modest increase in a property's final price can make it unattainable for this price-sensitive group, pushing the dream of ownership further out of reach.
