A Structural Shift in the Market
India's real estate market is witnessing a fundamental change. Developers are increasingly launching premium and luxury properties while the share of affordable homes declines. According to a report from CareEdge Ratings, homes priced below ₹1.5 crore,
which made up 85% of new launches in the first quarter of 2022, fell to just 47% in the same period of 2026. In stark contrast, the share of homes priced between ₹1.5 crore and ₹4 crore surged from 14% to 44% in the same timeframe. The ultra-luxury segment, with homes above ₹4 crore, has also expanded significantly. This isn't a fleeting trend but a structural realignment of the market, driven by a combination of economic pressures and evolving consumer tastes.
The Squeeze of Rising Costs
One of the primary reasons for this shift is simple economics. The cost of building has surged, making affordable housing projects less financially viable for developers. Key input costs for materials like steel, cement, and copper, along with rising labour and logistics expenses, have squeezed profit margins, especially in the price-sensitive affordable segment. Reports indicate that overall construction costs have risen by more than 25-34% in recent years due to supply chain disruptions and global tensions. Furthermore, escalating land prices in major cities are a huge factor. Anarock Research noted that while construction costs account for a significant portion of property price hikes, external factors like land value are responsible for about a third of the increase. When margins are thin, developers naturally pivot to where they can secure better returns.
Following the Resilient Demand
While costs are pushing developers away from the affordable segment, strong demand is pulling them towards luxury. The premium and luxury housing market has shown remarkable resilience, supported by affluent domestic buyers and Non-Resident Indians (NRIs) who are less sensitive to inflation and interest rate hikes. Post-pandemic, there has been a clear shift in preference towards larger homes with better amenities, open spaces, and features that support a healthier lifestyle. Buyers are increasingly prioritizing quality, location, and long-term value, and are willing to pay a premium for it. This has created a robust and reliable customer base for high-end properties, even as the broader market sees some moderation in sales.
Better Margins and Brand Value
For developers, the move towards luxury is a strategic business decision. Premium projects command higher profit margins, offering a better financial reward compared to the high-volume, low-margin nature of affordable housing. Building a luxury project also enhances a developer's brand visibility and aspirational value. These projects often become landmarks, attracting a clientele of high-net-worth individuals and establishing the developer's reputation for quality and exclusivity. In a market where buyers are becoming more discerning, a strong brand built on premium offerings can be a significant competitive advantage. Financially stronger developers are also better positioned to absorb market shocks and invest in the high-quality execution that luxury projects demand.
