Luxury Homes Outshine Affordable Units: A Shift in Real Estate Investment Trends
The real estate market in India is undergoing a significant transformation, with luxury homes priced above ₹1.5 crore outperforming affordable homes priced under ₹40 lakh. According to data from Anarock, a leading real estate research firm, the prices of luxury homes in India’s top seven realty markets have surged by 40% over the past three years, from ₹14,530 per square foot (sq ft) in 2022 to ₹20,300/sq ft for the year-to-date period of 2025. In contrast, the price increase for affordable units has been more modest, rising from ₹4,220/sq ft in 2022 to ₹5,299/sq ft in 2025, a 26% increase.
This divergence in price appreciation is attributed to several factors. One of the primary drivers is the consistent demand for larger homes in prime locations, particularly those developed by branded builders. Aakash Ohri, Joint Managing Director and Chief Business Officer at DLF Homes, noted that the growing significance of homeownership, coupled with strong consumer confidence in the sector, has accelerated demand for luxury housing. This has led to a sharp appreciation in prices across key National Capital Region (NCR) markets.
Real estate has consistently outperformed other asset classes in terms of capital growth and rental yields, making it a preferred long-term investment destination for high net worth individuals (HNIs), ultra-HNIs, and non-resident Indians (NRIs). This preference is further reinforced by the limited supply of quality luxury homes, rising consumer aspirations, and a clear shift towards branded, amenity-rich developments.
However, the rise in luxury home prices is not without its challenges. High input costs, including materials and labor, have pushed up construction costs, making it increasingly difficult for developers to build homes for under ₹40 lakh. The margin erosion is particularly severe in metros and Tier-1 and Tier-2 cities, where land prices have escalated. Anuj Puri, Chairman of Anarock, highlighted that the luxury segment has seen robust price escalation, with Delhi NCR leading the charge. Luxury properties in the NCR have seen a 72% price appreciation, from ₹13,450/sq ft in 2022 to ₹23,100/sq ft, followed by the Mumbai Metropolitan Region (MMR) and Hyderabad, with price increases of 43% and 41%, respectively, over the past three years.
Even the mid-range and premium segment homes, priced between ₹40 lakh and ₹1.5 crore, have seen their average prices rise by 39% across the top seven cities between 2022 and November 2025. This increase is higher than that of affordable homes, making the mid and premium segments more attractive for real estate investors.
Despite the demand for affordable housing and concerns about consumers being priced out, industry experts predict that high-end housing in the mid and luxury segments will continue to see more traction. Lalit Parihar of the Aaiji group suggested that developers in top markets may increase the supply of smaller apartment sizes to cater to the mid-income and premium segments (under ₹1.5 crore) to drive up volume sales.
The key reasons for this shift, according to Puri, are the changes in buyer preferences post-pandemic. Demand has skewed towards large and listed developers, and large-size homes in prime locations, a trend that continues today. Homes by these branded developers come at a premium, but buyers are willing to pay for the quality and amenities they offer. Additionally, the significant rise in input costs over the past three to four years has pushed many homes that were previously in the affordable budget bracket into the mid and premium segments.
In conclusion, while the demand for affordable homes remains strong, the real estate market is clearly showing a preference for luxury and mid-range properties. This trend is expected to continue, driven by the robust performance of luxury homes and the challenges faced by developers in maintaining the affordability of lower-priced units.
