India's Real Estate Sector Faces Structural Stress as Supply-Outpaces Construction
India’s residential real estate market, long buoyed by strong demand and rising property prices, is beginning to show signs of structural stress. Fresh research by non-broking real estate analytics firm Liases Foras points to a widening gap between supply and actual construction activity, raising concerns that the sector may be heading toward a period of churn driven by execution delays, rising costs, and inventory build-up.
Data accessed by Hindustan Times shows that only 55% of India’s marketable housing supply was under construction as of March 2026, a sharp decline from 75% in March 2017. Marketable supply refers to the total quantity of homes put up for sale by developers in a market. In March 2017, the country’s eight largest urban housing markets collectively had 3,601 million square feet of marketable supply, of which 2,700.75 million square feet was under construction. The gap between supply and construction remained broadly stable at approximately 25% for nearly four years.
Since March 2021, however, the divergence has widened considerably. By March 2026, the total marketable supply had increased to 4,010 million square feet, but the active construction volume had dropped to 2,205.5 million square feet, nearly 500 million sq ft lower than 2017 levels. “Between 2017 and 2026, the overall marketable supply grew by 11%. This clearly indicates a 20% decline in the construction pace, and it has nothing to do with the ongoing West Asia war,” said Pankaj Kapoor, founder and MD of Liases Foras.
Adding to the sector’s problems is a sharp rise in construction costs, driven by labour shortages, supply chain disruptions, and volatile commodity prices. According to JLL’s latest Construction Cost Guide, construction costs across asset classes are expected to rise between 3% and 5% in 2026. While prices of cement, steel, and diesel eased marginally in 2025, aluminium and copper costs rose sharply due to global demand pressures and supply chain constraints. Labour costs, meanwhile, have continued to rise steadily across all segments, increasing by 5% to 6% amid a shortage of skilled workers and growing infrastructure demand.
Some developers believe the cost escalation is already more severe than industry estimates suggest. Purvesh Sarnaik, MD at the Vihang Group’s Vihang Recreation Club, said that construction costs had already risen by nearly ₹250 per sq ft or a 4% to 6% increase over the current average construction cost of between ₹4,000 and ₹6,000 per sq ft. Developers also point to disruptions in raw material supply chains linked to the ongoing West Asia conflict, which are slowing project execution while pushing input costs higher.
Kapoor said the sector’s immediate challenge lay not in demand destruction but in balancing supply growth with execution capabilities. “Emerging execution and inventory risks will need careful navigation, as aggressive supply additions outpace construction progress in several markets,” he said.
Industry experts believe that financially stretched developers could face mounting pressure if the sales momentum slows further. “The primary risk lies in unrealistic financial underwriting, where projects are built on the assumption of continuously rising prices and sustained high sales velocity,” said Cyrus Mody, founder and CEO of Viceroy Properties. “Developers who have expanded too quickly, taking on multiple projects with limited margin buffers or high levels of debt, may be stressed unlike those who have priced projects prudently, maintained financial discipline, and focused on execution quality.”
A Mumbai-based developer said the broader economic climate and inflationary pressures were worsening the conditions on the ground. A prolonged sales slowdown, he warned, could trigger layoffs and force developers to cut back on construction activity, creating a vicious cycle of weakening demand and tighter capital availability. “It’s a cycle that, if not managed well, could turn out to be a death knell,” he said.
