Shift to Premium Real Estate: Developers and Lenders Adapt to High-End Market

Real estate developers in India are increasingly concentrating on high-end and luxurious projects, rather than affordable housing schemes. This shift is forcing lenders to reconsider their home loan market strategies, according to a report from Antique Stock Broking's BFSI Conference 2025, cited by ANI.

Developers are now hesitant to build homes priced under Rs 50 lakh due to high land costs, lower profit margins, and a lack of government incentives. Housing finance experts at the conference highlighted two major challenges in the affordable housing segment. First, developers are moving away from building budget-friendly homes. Second, traditional affordable housing projects in Tier 1 and 2 cities are being replaced by premium developments.

The situation is particularly severe in cities like Mumbai, where soaring land prices have made affordable housing projects financially unfeasible for builders. Instead, there's a growing trend towards homes in the Rs 2-3 crore range, while the supply of affordable housing continues to shrink.

"Banks are not inherently set up to cater to the micro-level assessment required for affordable housing. They are expected to enter via co-lending partnerships rather than direct exposure," the after-conference report stated. This suggests a need for more collaborative approaches to financing affordable housing.

Housing Finance Companies (HFCs) would need to expand their presence in Tier 3 and 4 cities to remain competitive. Meanwhile, as public sector banks and large banks dominate the salaried customer market with pre-approved offers, experts suggested focusing on proprietorship and partnership firms. They noted that while salaried cash flows are predictable but offer lower yields, non-salaried cash flows are more complex to assess but provide higher yields and face less competition from traditional banks.

"By targeting these premium customers, the company avoids putting in more efforts to disburse individual loans," the report added, explaining how lenders are adapting to the changing market landscape. This shift towards premium customers not only helps in reducing the administrative burden but also enhances profitability for lenders.