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India's residential real estate market is projected to grow steadily at 10-12% over the next two financial years, driven by lower home loan interest rates and improved affordability. ICRA's analysis indicates that growth will come from a 5-7% increase in sales volumes and a 4-6% rise in average prices. Premium and luxury housing continues to gain traction, while affordable and mid-income segments see reduced shares due to rising land and construction costs. Despite modestly higher inventory levels, developers financial health remains strong, supported by equity inflows and efficient project execution.
ICRA's recent assessment shows that residential real estate sales in India are likely to increase steadily by 10-12% in the current and next financial year, reflecting a stabilisation in housing demand following three years of strong post-pandemic recovery. The expected growth is split between a 5-7% rise in sales volumes and a 4-6% increase in average realisations, supported by easing home loan interest rates and improving affordability. Advertisement
The rating agency's projection is based on data from a sample of 75 developers, accounting for roughly 35% of total residential sales in the country. Over the past three financial years through FY2025, the sector achieved a compound annual growth rate (CAGR) of nearly 26%, with demand volumes contributing about 14% and the remaining growth coming from higher realisations. In FY2025, demand in several cities remained largely flat due to elevated property prices, delays in new project launches, state elections, and changes in property registration rules.
Looking ahead, demand is expected to recover, aided by moderating price increases and smoother project launches as previous regulatory and administrative disruptions ease. Premium and luxury housing has gained a significant share in total launches, rising from 9% in 2020 to 37% in 2024 in the top seven cities. ICRA expects these segments to account for 38-40% of launches in 2025 and 2026, driven by rising incomes, urbanisation, and buyer preference for larger, better-quality homes.
Conversely, the affordable and mid-income segments are projected to remain subdued. Affordable housing is likely to constitute 10-12% of new launches, while mid-income projects may contribute 19-20%, down from 30% and 40%, respectively, in 2020. Rising land and construction costs continue to affect the viability of these segments.
On the supply side, developers ramped up launches over the past three years anticipating strong demand, resulting in supply outpacing absorption. Inventory levels are expected to increase slightly, reaching 2.9-3.1 years, compared to 2.7-2.9 years in the previous two financial years. Despite higher inventory, developers financial positions remain healthy, underpinned by strong collections, timely project execution, and adoption of asset-light models such as joint ventures and joint development agreements. Balance sheets have improved further due to substantial equity inflows and QIP proceeds.
Overall, the market reflects a stable growth phase where strategic planning by developers, moderate price growth, and continued interest in premium segments are expected to sustain momentum.
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