Luxury vs affordable homes: How India's housing market is becoming increasingly polarised

India's housing market is witnessing a growing divide. While premium and luxury residential projects are enjoying strong demand and attracting developers with higher margins, affordable housing for lower-income households is facing mounting challenges, raising concerns over the inclusiveness of the country's urban growth story.

According to a joint report by KPMG in India and the National Real Estate Development Council (NAREDCO), this divergence could become more pronounced as rapid urbanisation drives demand for housing over the coming decades. The report estimates that nearly 40% of India's population will live in urban areas by 2036, with almost half expected to reside in cities by 2050. It also projects the country's real estate sector to reach $5.8 trillion by 2047.

However, beneath the impressive growth numbers lies an increasingly polarised market.

Premium housing takes centre stage

Over the past few years, developers have steadily shifted their focus towards middle-income, luxury and ultra-luxury housing segments. Strong post-pandemic demand, rising incomes among affluent buyers and better profitability have made premium projects more attractive.

The trend has been visible across major cities, where developers have launched larger homes and high-end projects aimed at wealthier buyers. Premium properties have also benefited from changing consumer preferences, with homebuyers seeking bigger spaces and lifestyle amenities after the Covid-19 pandemic.

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For developers, the economics are compelling. Higher ticket sizes and better margins make premium housing more financially rewarding compared with affordable projects, which operate under tighter cost constraints.

Affordable housing under pressure

The same factors that have boosted luxury housing have created headwinds for affordable housing.

According to the KPMG-NAREDCO report, rising land prices since the pandemic have significantly affected the commercial viability of projects aimed at Economically Weaker Sections (EWS) and Low-Income Groups (LIG).

Developers have increasingly found it difficult to maintain profitability in these categories, leading to slower supply growth.

The report also points to structural challenges including restrictive Floor Area Ratio (FAR) and Floor Space Index (FSI) norms, lengthy approval processes and limited access to low-cost finance. Several land parcels remain underutilised because of litigation, poor connectivity or lack of infrastructure.

Affordable housing finance companies face higher borrowing costs than banks, while credit penetration remains weak in Tier-II and Tier-III markets where housing demand is expanding.

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Why it matters

India's urban population is set to expand rapidly, increasing the need for homes across income categories. If affordable housing supply fails to keep pace with demand, the gap between home ownership aspirations and actual availability could widen.

The report warns that affordable housing must remain central to India's urban development agenda if the country is to ensure inclusive growth.

What can be done?

To revive the segment, KPMG and NAREDCO have recommended reserving 5% each of residential land in master plans for EWS and LIG housing, increasing permissible FAR, easing setback and parking norms and introducing a single-window approval system.

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The report also advocates better access to low-cost funding, longer-tenure home loans and targeted tax incentives to make affordable housing more viable.

As India's cities continue to grow, the challenge for policymakers and developers will be ensuring that the housing market does not become a tale of two Indias—one catered to by luxury towers and another struggling to find homes within reach.

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