The recent report by Knight Frank highlights an interesting trend in India’s real estate landscape. While luxury housing is flourishing, affordable housing is facing significant challenges. In the third quarter of this year, luxury homes priced at Rs 1 crore and above comprised 46% of total home sales across the top eight cities in India. This surge in luxury sales comes at a time when the mid-range (Rs 50 lakh – Rs 1 crore) and affordable segments (under Rs 50 lakh) have recorded declines of 13% and 14% year-on-year, respectively.

The shrinking share of affordable housing

For many in India’s middle class, the dream of homeownership is becoming increasingly unattainable. Homes priced below ₹50 lakh now account for only 15% of the residential real estate market, a steep drop from 27% in Q1 2022. This represents the lowest market share for affordable housing in years. The decline can be attributed to a combination of factors, including rising interest rates, escalating property prices, and a dwindling supply of affordable options.

Economic forces behind luxury growth

While affordable housing struggles, the luxury segment is thriving, driven by a combination of rising incomes and changing consumer preferences. The luxury housing market has tripled its share over the past five years. The trend of premiumisation, where consumers seek higher-quality living spaces, has led to a notable increase in demand for luxury properties.

Furthermore, the concept of fractional ownership is gaining traction, allowing more individuals to invest in luxury homes. According to the Luxury Outlook Survey 2023 by India Sotheby’s International Realty, 75% of ultra-high-net-worth and high-net-worth individuals surveyed believe that real estate will perform well over the next few years, with many looking to acquire ultra-expensive homes. Key locations for these investments include Delhi NCR, Mumbai, Goa, and Bangalore.

Can affordable housing adapt?

Despite the booming luxury market, the question remains: can affordable housing withstand this economic shift? The decline in affordable options poses significant challenges for the middle class. With increasing demand for luxury properties and a corresponding drop in affordable housing availability, the future of affordable housing looks uncertain.

The shortage of affordable homes, particularly in prime areas, has led to a growing reliance on luxury options. Additionally, NRI investments have significantly boosted the luxury market, now contributing nearly a quarter of total residential sales at major developers, up from 7-10% pre-pandemic.

Therefore, while the luxury housing market thrives, affordable housing is at risk of being overshadowed. Economic shifts are reshaping the real estate landscape, leaving the middle class grappling with limited options and raising concerns about the long-term sustainability of affordable housing in India.