India's housing market is undergoing a structural shift toward premium and luxury homes, with the affordable housing segment steadily losing share in new project launches, according to CareEdge Ratings.

The rating agency said stronger demand from affluent buyers and rising development costs are the key drivers of this transition. The shift is taking place even as overall housing sales moderate in some of India's major cities, where affordability pressures and more cautious buyer sentiment have weighed on activity. Rising input costs and land prices have made lower-priced projects less viable for developers, while post-pandemic demand has been led by larger, better-financed buyers less dependent on home loans.

Affordable housing loses share to premium segment

CareEdge Ratings' assessment points to a changing composition of new supply, with developers increasingly focusing launches on the premium and luxury categories rather than the affordable segment that once dominated India's residential market. The trend marks a reversal from the years following 2015, when affordable housing drove the bulk of launches, supported in part by government incentives such as the credit-linked subsidy scheme under the Pradhan Mantri Awas Yojana. The tapering of that subsidy window and elevated construction and land costs have made sub-Rs 45 lakh projects less attractive for builders, even as first-time buyer demand in that price band remains price-sensitive.

Developer balance sheets strengthen

Alongside the shift in demand mix, the agency noted that developer balance sheets have strengthened, reflecting the healthier financial position of builders across the sector. The consolidation follows the sector-wide stress of the 2010s, when leveraged builders, stalled projects, and the 2016 demonetisation and subsequent policy changes weeded out weaker players. Larger listed developers, which have captured a growing share of launches and sales in recent years, have benefited from improved pre-sales collections and lower debt, positioning them to fund premium projects with less reliance on external borrowing.

Housing sales show sharp city-wise divergence

The report also highlighted significant variation in housing market performance across cities.

Western, northern markets moderate; southern cities remain resilient

Housing sales in western and northern markets have moderated, while southern cities have remained resilient, according to CareEdge Ratings. The divergence reflects differing local dynamics, with the Mumbai Metropolitan Region and National Capital Region cooling after a strong post-pandemic run in which prices rose faster than incomes, while Bengaluru, Hyderabad, and Chennai have continued to see steady absorption, supported by sustained white-collar employment growth in information technology and related sectors.

How the premiumisation trend evolves from here will depend on the trajectory of home loan interest rates, household income growth, and whether developers reassess re-entering the affordable segment — a space where government policy support and inventory economics remain the key variables.

Source: Economic Times Markets