Affordable Housing Faces Another Year of Subdued Demand

The sale of affordable housing units is expected to remain subdued next year due to low supply and lower buyer interest, as interest rates on loans have not fallen enough. Experts say that affordable housing sales can only be propped up through more rate cuts and incentives for developers.

Despite reductions in goods and services tax (GST) and interest rates, affordable housing sales fell in 2025. The benefits were minimal and supply lagged. According to Knight Frank India, the sale of units priced under Rs 50 lakh dropped 17% year-on-year in 2025, launches dropped by 28%, and the quarters to sell level stood at 8.7 compared to 8.2 in 2024.

While GST reductions in September 2025 are directionally positive, the overall benefit amounts to roughly just 1% of the final product’s value, said Vivek Rathi, National Director-Research, Knight Frank India. “Sales exceed supply/launch volumes in this segment, which is contrary to the overall market where the opposite dynamic exists. This suggests that there might be a lack of viable options in the segment contributing to the depressed volumes,” Rathi explained.

Prashant Thakur, Executive Director & Head-Research & Advisory, Anarock Group, agrees. “Current trends indicate that the rate cuts have so far not had any major impact to boost the momentum significantly in this segment,” Thakur said. The Reserve Bank of India has cut key rates by 125 basis points since February this year.

Overall sales share of affordable housing is expected to be around 18-19% of the total housing sales across cities in 2025. Back in 2024, out of the total sales of nearly 460,000 units in the top 7 cities, affordable housing’s share stood at 20%. This share was the highest in 2019 when out of nearly 261,000 units sold, 38% was within this segment, according to Anarock Research.

Rathi noted that both volumes sold and launched have consistently fallen over the past few years as the core of the market shifted to higher-priced segments. The chief executive of an NBFC said developers lack interest in the segment due to the economics of the segment. “There is no supply in the segment as developers are hardly looking at it. They don’t see profit in that. Everybody is looking at luxury as that has higher margins,” said the CEO.

Most developers have shifted to premium and luxury housing projects, which carry margins of 30% and above, as opposed to affordable housing, which has margins of 10-15%, experts said.

If development is encouraged with material financial incentives in the FY27 Budget, this segment might just stabilize its ongoing fall, Rathi said. Anarock’s Thakur added that while demand remains high in this segment, affordable housing may see less momentum in 2026 as well, unless the RBI announces further rate cuts that make home loan interest rates more attractive for cost-conscious buyers.

One of the factors that can boost momentum would be if the government announces focused incentives for both developers and buyers. The incentives include re-introducing a 100% tax holiday for affordable housing developers. The government should seriously reconsider revising the pricing definition of affordable homes city-wise. While the size of units as per its definition (carpet area of 60 square meters) is fairly appropriate, the price (up to Rs 45 lakh) is definitely not viable across most cities.

For instance, for a city like Mumbai, a less than Rs 45 lakh budget is far too low and should be increased to at least Rs 85 lakh. As for other top cities, the budget should be increased to at least Rs 60-65 lakh. With this price revision, more homes will fall within the affordable tag, and more buyers can avail of multiple benefits such as lower GST rates at 1% without ITC, government subsidies, and so on.