As luxury home prices surge, India’s affordable housing market faces a squeeze

By Jag Jivan 

India’s housing market is increasingly showing two very different faces: affluent buyers are driving demand for premium homes, even as the supply of genuinely affordable housing continues to shrink.

The contrast is particularly visible in South Delhi, where prices of luxury independent floors rose as much as 21% year-on-year in the April-June quarter of 2026, according to a report by Golden Growth Fund (GGF). Prices in Category A colonies rose 20-21%, with the average price of a 2,500 sq ft floor reaching Rs 23 crore and a 6,000 sq ft floor reaching Rs 48.5 crore.

The increase was also visible, although less sharply, in Category B colonies. A 2,500 sq ft floor rose 10% year-on-year to an average Rs 10.75 crore, while a 3,200 sq ft floor rose 6% to Rs 16.5 crore.

So, is the rich buyer the reason property prices are rising?

In the luxury segment, increasingly, yes — but they are not the whole story.

GGF CEO Ankur Jalan attributed South Delhi's price momentum to a combination of low supply, redevelopment, premiumisation and rising demand from high-net-worth individuals (HNIs) and non-resident Indians (NRIs). He said geopolitical tensions in West Asia were also encouraging some HNIs and NRIs to shift investments towards South Delhi, attracted by perceived safety, capital appreciation and rental potential.

The supply constraint is important. GGF estimates that around 18,500 plots are available across 42 Category A and B colonies in South Delhi, with redevelopment potential estimated at Rs 6.5 lakh crore.

That combination — wealthy buyers competing for a limited number of desirable properties — can produce sharp price increases even without a broad-based boom in housing demand.

And South Delhi is not an isolated case. Delhi-NCR recorded a 30% year-on-year increase in housing sales in the first quarter of 2026, with premium housing emerging as a major driver of the market, according to JLL data. 

JLL's latest residential report found that sales of homes priced above Rs 1 crore increased 30% year-on-year in Q1 2026, while sales of homes below Rs 1 crore contracted 24%. Overall residential sales rose 8% to 70,631 units, indicating that the market was growing — but increasingly on the back of higher-value homes.

This is the more significant development for the wider housing market.

The affordable housing paradox

At first glance, rising property prices might suggest that housing demand is simply too strong. But the data points to another problem: the market is not producing enough homes at prices that ordinary households can afford.

In fiscal 2026, the affordable segment — homes priced below Rs 1 crore in the cited market classification — saw sales decline 7% quarter-on-quarter and 21% year-on-year, even as mid-income and luxury housing recorded growth.

The result is a market where developers have stronger incentives to build expensive homes while buyers at the lower end face increasing affordability constraints.

This shift has been underway for several years. JLL's Q1 2026 figures show that the sub-Rs 1 crore segment contracted even as homes above Rs 1 crore expanded strongly.

There is therefore a crucial distinction between housing demand and effective purchasing power. Millions of households may need homes, but that does not necessarily translate into effective demand when land, construction and financing costs push new homes beyond their budgets.

Why prices can keep rising when the broader market is not booming

Several factors are working together.

First, land is scarce in established urban locations. In South Delhi's most desirable colonies, the attraction is not simply the house itself but the location, infrastructure, neighbourhood and limited availability of land.

Second, redevelopment is changing the product. Older independent properties are increasingly being redeveloped into larger, better-designed floors. GGF says landowners are opting for redevelopment while buyers are seeking larger homes in established locations.

Third, wealthier buyers are less sensitive to mortgage rates. HNIs, ultra-high-net-worth individuals and NRIs can have greater capacity to purchase without relying entirely on conventional home loans. This makes the luxury market less vulnerable to affordability constraints affecting first-time buyers.

Fourth, real estate is being treated as a wealth-preservation asset. Recent reporting indicates that affluent Indian buyers and NRIs continue to view premium residential property as a means of wealth preservation and lifestyle consumption despite broader economic uncertainty.

The result is a peculiar situation: prices can rise rapidly in prime locations even while the overall housing market becomes more selective.

But are ordinary buyers necessarily being priced out everywhere?

Not entirely.

Housing affordability varies considerably between cities. A July 2026 assessment by Knight Frank reported that six of India's eight largest housing markets remained within its affordability threshold in the first half of 2026, helped by relatively favourable borrowing costs and stable employment and income conditions.

The Reserve Bank of India also kept its repo rate at 5.25% in August, providing some stability to borrowing costs, although future interest-rate movements remain dependent on inflation and wider economic conditions.

But affordability is not just about the monthly EMI. It is also about the price of the property relative to household income and where that property is located.

For a salaried household, a home may technically be financeable while still being unaffordable in practical terms if the down payment, EMI, maintenance and commuting costs consume too much of household income.

The Policy Challenge

The government's response is increasingly focused on expanding affordable housing. The Ministry of Housing and Urban Affairs says PMAY-U 2.0, launched in 2024, aims to support one crore additional eligible urban beneficiaries over five years. The government has also said NITI Aayog's 2025 framework seeks to promote and enable affordable housing.

But the market's current direction raises a harder question: is simply building more homes enough, or does India need to build more homes at the price points where lower- and middle-income households can actually buy them?

The South Delhi experience illustrates the other end of the spectrum. GGF's data shows that in a highly desirable, supply-constrained market, wealthy buyers can sustain substantial price increases. A 6,000 sq ft floor in a Category A colony now averages Rs 48.5 crore, compared with Rs 40.5 crore a year earlier.

That is a very different housing market from the one faced by a first-time buyer looking for a home within a few tens of lakhs.

The emerging picture, therefore, is not simply that India has too much demand. It is that India has different kinds of demand — and the supply of housing is increasingly responding to the buyers with the greatest purchasing power.

For the wealthy, limited supply in prime locations is pushing prices higher. For the middle class and lower-income households, the more pressing problem may be that affordable supply is not keeping pace with need.

That could make the country's housing challenge less about whether India is building enough homes — and more about who those homes are being built for.