Why Affordable Housing Lags Despite RBI Rate Cuts: Premium Homes Drive Market, Says Report
Despite three consecutive RBI rate cuts and improved liquidity, India's affordable housing sector continues to face headwinds, with the premium housing market driving the growth.
Rbi Rate CutsAffordable HousingPremium HousingReal Estate MarketLiquidityReal Estate NewsAug 29, 2025
The report notes that while the overall Future Sentiment Score rebounded to 61 in Q2 2025 from 56 in the previous quarter, optimism remains concentrated in premium housing and office markets.
Premium Homes Surge, Mid-Segment Stalls
“Residential market sentiment in Q2 2025 remains cautiously positive, with 70% of stakeholders expecting either stable or higher launches. This growth, however, is driven largely by the premium housing segment, particularly units priced above ₹10 million (₹1 crore),” the report highlighted.
In contrast, affordable and mid-segment launches are slowing down. Developers are increasingly prioritizing high-value projects in cities like Bengaluru, Hyderabad, and NCR, where demand remains robust.
Affordability Challenge Deepens
Despite financing schemes and incentives, affordability remains the biggest hurdle for lower ticket housing. Only 52% of stakeholders expect stable or improved sales in the next six months, up marginally from 50% in Q1 2025, reflecting sluggish momentum in the budget category.
Knight Frank’s research notes that 94% of stakeholders foresee stable or increasing residential prices, with Bengaluru, NCR, and Chennai recording double-digit year-on-year growth in H1 2025. Rising prices, combined with stagnant wage growth, have widened the affordability gap for first-time buyers.
Developers and Lenders Shift Focus
The report also shows a sharp improvement in developer sentiment, rising to 63 from 53. Most of this optimism stems from premium housing and Grade A commercial projects, where returns are higher and financing is easier to secure.
Non-developer stakeholders, banks, NBFCs, and private equity funds, are also tilting towards premium projects. The report highlights that funding is flowing more freely to large-ticket, low-risk inventory, while affordable housing continues to face cautious underwriting.
Outlook: Premium Remains the Sweet Spot
G. Hari Babu, National President of NAREDCO, observed that “India’s real estate sector is regaining stability after a year of moderation. Developers are focusing on high-quality inventory as liquidity improves and borrowing costs ease.”
“Despite RBI’s supportive stance on rates, affordable housing continues to struggle as rising property and construction costs have pushed even entry-level homes beyond the reach of first-time buyers. Meanwhile, developers and lenders prefer premium housing for its better margins and lower risks. To revive demand, stronger policy support is needed in the form of targeted subsidies, lower GST on budget homes, and easier credit access for both buyers and developers,” stated Kushagr Ansal, Director, Ansal Housing.
Vishal Sabharwal, Head Sales, Orris Group, says, “The sentiment index’s positive swing isn’t just statistical, it mirrors the renewed confidence we see among homebuyers, investors, and corporates across NCR. In housing, end-users are upgrading faster, while in commercial real estate, demand from new-age businesses and flexible workspace operators is driving leasing activity. Importantly, the market today is far more structured, transparent, and quality-focused than a decade ago, and with policy stability, infrastructure delivery, and a clear appetite for both living and working spaces, we foresee NCR positioned to remain one of India’s most dynamic markets in the years ahead.”
For homebuyers, this means affordability pressures are unlikely to ease soon. While RBI’s rate cuts have lowered EMIs, rising property prices in metros are pushing affordable homes further out of reach. The market momentum, at least for now, remains firmly with premium buyers.
Frequently Asked Questions
What are the key findings of the Knight Frank–NAREDCO Real Estate Sentiment Index?
The key findings include a rebound in the Future Sentiment Score to 61 in Q2 2025 from 56, with optimism concentrated in premium housing and office markets. Affordable and mid-segment housing launches are slowing, and developers are prioritizing high-value projects.
Why is affordable housing struggling despite RBI rate cuts?
Affordable housing is struggling because rising property and construction costs have pushed even entry-level homes beyond the reach of first-time buyers. Despite RBI’s rate cuts, which have lowered EMIs, rising property prices in metros are making affordable homes less accessible.
What is the outlook for the real estate market in major cities like Bengaluru and NCR?
The outlook for the real estate market in major cities like Bengaluru and NCR is positive, with a focus on high-quality inventory. Developers and lenders are tilting towards premium projects due to better margins and lower risks. However, the affordability gap for first-time buyers is widening.
What measures are needed to boost the affordable housing sector?
To boost the affordable housing sector, stronger policy support is needed in the form of targeted subsidies, lower GST on budget homes, and easier credit access for both buyers and developers. These measures can help narrow the affordability gap and stimulate demand.
How are non-developer stakeholders like banks and NBFCs responding to the market changes?
Non-developer stakeholders, including banks, NBFCs, and private equity funds, are increasingly focusing on premium projects. Funding is flowing more freely to large-ticket, low-risk inventory, while affordable housing continues to face cautious underwriting.
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