India’s affordable housing market, once a cornerstone of urban residential demand, witnessed a sharp 32% decline in sales during the first half of 2025. The drop underscores shifting buyer preferences, inflationary headwinds, and reduced availability of budget-friendly projects. While the overall residential market remains buoyant, with mid and premium segments registering growth, the affordable category—typically priced under Rs. 40 lakh—has been significantly impacted by rising construction costs and limited new supply. Developers are increasingly focusing on higher-margin housing, leaving the economically weaker sections and lower middle-income buyers underserved in major urban centres.
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Sharp Fall in Sales Reflects Structural Strain
During H1 2025, affordable housing sales across India’s top seven cities declined by 32% compared to the same period last year. This contraction has raised concerns among policymakers and urban planners, especially as the segment was once hailed as essential to addressing India’s urban housing shortage.
The decline comes despite macroeconomic stability and rising homeownership aspirations. Industry analysts attribute the slump to increasing land acquisition and raw material costs, which have eroded the financial viability of affordable housing projects.
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Buyers Priced Out as Developers Pivot Upmarket
Rising input costs and squeezed profit margins have led several real estate developers to shift focus away from affordable housing towards mid-income and premium segments, where returns are higher. As a result, new project launches in the sub-Rs. 40 lakh category have decreased substantially.
With fewer options available and the price per square foot climbing steadily, many first-time buyers—particularly from working-class and informal employment backgrounds—find themselves priced out of the market. The credit flow to this segment has also remained constrained, with banks and housing finance companies tightening eligibility norms in certain urban clusters.
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Urban Affordability Crisis Worsens
Cities such as Mumbai, Pune, and Bengaluru, where land is scarce and expensive, have witnessed the most pronounced decline in affordable housing supply. In several micro-markets, the average ticket size of new homes has moved well beyond the reach of lower-income groups.
This mismatch between demand and supply has contributed to a growing affordability gap, pushing potential buyers toward distant suburbs or informal housing alternatives. Government schemes like PMAY (Pradhan Mantri Awas Yojana), though impactful in earlier years, have seen reduced momentum in recent quarters.
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Policy Measures and Market Outlook
To revive the affordable segment, analysts suggest a combination of fiscal incentives, relaxed FSI (floor space index) norms, and streamlined project approval processes. An increase in budget allocations for affordable housing, as well as enhanced interest subsidies for low-income borrowers, could also help reinvigorate demand.
Despite current headwinds, the long-term fundamentals of the affordable housing sector remain intact. India's rapid urbanisation, young demographics, and rising nuclear family trend suggest latent demand will persist—provided that housing remains genuinely accessible.
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Conclusion:
The 32% plunge in affordable housing sales serves as a wake-up call for both developers and policymakers. Without targeted interventions and a renewed focus on housing equity, India risks exacerbating its urban housing divide. For sustainable growth, the sector must balance profitability with inclusivity, ensuring that homeownership remains a realistic aspiration for all segments of society—not just the affluent.
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