India's Real Estate Market Enters Cautious Recalibration Phase in Q1 2026

Mumbai: India’s real estate sector has entered a phase of cautious recalibration, with sentiment weakening sharply in the first quarter of 2026. The Knight Frank-NAREDCO Real Estate Sentiment Index highlights the significant downturn, as the Current Sentiment Score fell to 49 in the March quarter from 60 in the December quarter, slipping into pessimistic territory. The Future Sentiment Score also declined to a neutral 50 from 61 in the previous quarter, signaling a clear break from the sustained optimism seen in recent years.

The moderation in sentiment has been driven largely by global uncertainties. Elevated crude oil prices have intensified inflationary pressures, raising construction and logistics costs and impacting project viability. Tighter financial conditions have further pushed stakeholders towards a cautious stance, even as domestic economic fundamentals remain relatively stable.

The residential segment is showing signs of consolidation after a prolonged growth cycle. Sales and new launches moderated during the quarter, reflecting both cyclical adjustment and weaker buyer sentiment. Demand expectations have softened further, with 52% of respondents expecting housing sales to decline. On the supply side, nearly half of stakeholders anticipate fewer new launches, marking a shift from the stronger activity levels seen in 2025.

Despite softer demand, residential prices remain firm. As many as 73% of respondents expect prices to either rise or stay stable, while only 27% foresee a decline. Rising input costs, including materials, labor, and financing, continue to support pricing levels, creating a divergence between demand sentiment and price expectations.

In contrast, the office segment remains resilient and continues to anchor the sector. Leasing activity reached a record high in Q1 2026, supported by strong occupier demand and limited supply in key markets. “The moderation in sentiment reflects the growing influence of global uncertainties, particularly energy market disruptions and geopolitical tensions. While India’s economic fundamentals remain robust, the real estate sector is entering a phase of cautious recalibration. The residential segment is witnessing a natural moderation after a strong growth cycle, while the office market continues to exhibit resilience driven by strong occupier demand,” said Shishir Baijal, International Partner, CMD, Knight Frank India.

In the near term, stakeholders are likely to remain in a wait-and-watch mode as they assess the evolving macroeconomic environment. “Real estate sentiment has moderated amid global macroeconomic headwinds and inflationary pressures; however, this reflects short-term caution among stakeholders rather than any weakening in the residential market’s underlying strength,” said Praveen Jain, National President-NAREDCO. According to him, the recent softening in residential sentiment can be seen as a natural recalibration following a sustained growth phase, with end-user demand and steady price appreciation continuing to support resilience.

Around 41% of respondents expect leasing activity to improve, while 36% foresee stability. Rental outlook also remains firm, with 81% expecting rents to rise or remain stable, driven by demand from Global Capability Centres and constrained supply of Grade A spaces. Stakeholder sentiment has turned more guarded across categories. Non-developer stakeholders, including financial institutions and investors, saw a sharper drop in confidence, with future sentiment declining to 50 from 63 in Q4 2025. Developers also moderated their outlook, with their future sentiment score easing to 51 from 58.

Regionally, sentiment softened across all zones, with North and South India slipping into pessimistic territory, while the West remained relatively resilient. Economic sentiment has also weakened, with 50% of respondents expecting conditions to worsen over the next six months, compared with 29% anticipating improvement. Funding conditions remain steady but cautious, with 43% expecting no change and 24% foreseeing tighter liquidity.

Overall, the Q1 2026 index points to a transition phase, with global factors likely to shape sentiment and investment decisions in the near term, even as underlying market fundamentals remain intact.