India's real estate sector stands at a critical juncture, with industry leaders calling for comprehensive policy reforms in Budget 2026 to address a deepening housing divide. The sector, which contributes nearly 7% to India's GDP and employs over 70 million people, requires urgent fiscal intervention to maintain its role as a pillar of economic growth and urban transformation.

Growing Market Imbalance Threatens Housing Accessibility

Anuj Puri, Chairman of ANAROCK Group, warns of emerging structural imbalances creating a two-tier housing market. While luxury housing sales and prices capture media attention, homeownership is becoming increasingly unaffordable for large segments of the Indian population. Without decisive intervention in Budget 2026, Puri cautions that the gap between premium housing and basic affordable homes could widen further, potentially excluding millions from the ownership cycle.

Affordable Housing Requires Immediate Fiscal Support

The revival of affordable housing emerges as a central priority among industry recommendations. Puri emphasizes that reintroducing the 100% tax holiday for developers under Section 80-IBA could provide the most immediate and effective boost to supply. This incentive, which was withdrawn in 2021, had previously encouraged broader developer participation and accelerated affordable project launches.

Industry experts argue that without restoring such incentives and recalibrating affordability thresholds, both demand and supply in this critical segment will remain subdued.

Infrastructure Acceleration Critical for Housing Expansion

Infrastructure development represents another key area requiring immediate attention. While Puri acknowledges positive initiatives such as the National Infrastructure Pipeline and PM Gati Shakti, he highlights implementation speed as a persistent concern. Priority funding is needed for metro rail expansions, suburban rail networks, ring roads connecting peripheral regions, and integrated logistics corridors—all vital for unlocking new housing corridors and reducing pressure on urban cores.

Consumer-Focused Reforms to Boost Housing Demand

Anurag Mathur, CEO of Savills India, advocates for demand-side reforms that directly improve household affordability. His recommendations include:

• Raising the standard deduction for individual taxpayers
• Linking deductions to a percentage of income
• Implementing measures to increase disposable incomes

Mathur argues that higher disposable incomes can meaningfully support housing demand among middle-income and first-time buyers, particularly in urban centers.

Rental Housing and REITs as Affordability Solutions

Rental housing is increasingly viewed as a structural solution rather than a temporary measure. Mathur emphasizes the need for policy support to expand professionally managed rental housing, including enabling multi-family REITs. Such measures could improve affordability, enhance workforce mobility, and attract institutional capital into an underdeveloped segment despite rising urbanization.

Additionally, Mathur points to the importance of pragmatic land reforms and monetization of underutilized government land to address supply-side constraints, potentially lowering development costs and accelerating housing delivery.

Market Challenges Persist Despite Overall Resilience

Shishir Baijal, Chairman and Managing Director of Knight Frank India, notes that despite overall market resilience, affordable housing continues to underperform. He attributes this to declining affordability, rising input costs, and limited end-user support, warning that without timely policy recalibration, demand in this segment could remain structurally weak.

Baijal stresses the need to realign housing incentives with current urban cost structures, particularly in large cities where existing price thresholds no longer reflect market realities.

Infrastructure Investment for Inclusive Growth

Both Baijal and Mathur emphasize that sustained investment in mass transit and urban infrastructure is crucial for long-term inclusion. Improved connectivity to peripheral growth corridors can expand affordable land supply, while continued development of Global Capability Centers and office hubs in Tier II and III cities can drive decentralized job creation and promote more balanced urban growth beyond metropolitan areas.

Industry leaders agree that Budget 2026 represents a defining moment for India's housing sector. From restoring affordable housing incentives and accelerating infrastructure execution to strengthening rental housing and consumer affordability, experts emphasize that bold, coordinated policy action is essential to prevent a deeper housing divide and ensure India's urban growth remains inclusive and sustainable.

India's housing market concluded CY25 on a weak note, with clear signs of momentum loss emerging across key metrics, according to a comprehensive analysis by Nuvama Institutional Equities. The real estate sector, which had been riding a strong upcycle since CY21, faced its most challenging period as affordability pressures and luxury market concentration created headwinds for sustained growth.

Sharp Quarterly Decline Marks Turning Point

The fourth quarter of CY25 delivered the most pronounced slowdown in housing demand since the current cycle began. Key performance indicators revealed the extent of the deceleration:

This marked the first year-on-year decline in quarterly sales value in four years, underscoring the significant shift in market dynamics. While full-year housing sales value managed to rise 4% year-on-year, launches by value remained flat, indicating developer caution.

Mixed Regional Performance Across Major Markets

City-level analysis revealed divergent trends across India's major real estate markets. Housing absorption declined year-on-year across all major cities in December, with the National Capital Region (NCR) experiencing the steepest decline.

Volume performance varied significantly by region during CY25:

Positive Growth Markets:

• Bengaluru: Volume pickup recorded
• Chennai: Volume pickup recorded
• NCR: Volume pickup recorded

Declining Markets:

• Hyderabad: Double-digit volume decline
• Mumbai Metropolitan Region (MMR): Double-digit volume decline
• Pune: Double-digit volume decline

Overall housing absorption volumes fell 6% year-on-year for CY25, reflecting sustained pressure on end-user demand despite relatively stable pricing across markets.

Supply Dynamics Show Regional Variations

Supply-side trends presented a mixed picture, with southern cities demonstrating resilience while other regions contracted. Housing launches by value increased 13% year-on-year in December but declined 13% in Q4CY25.

For CY25 overall, launches by value remained flat while volumes declined 8% year-on-year, suggesting developers are becoming more selective about new project introductions.

Inventory Levels Remain Stable Despite Volume Pressure

Despite weaker sales volumes, inventory management across markets remained relatively controlled. Pan-India inventory stood at 19 months in December 2025, unchanged from the previous month and only marginally higher than the 18 months recorded in December 2024.

Regional inventory variations highlighted different market conditions:

• Pune and NCR: Balanced at 14 months inventory
• Hyderabad: Elevated supply levels at 28 months
• Other major cities: Generally stable inventory positions

Low inventory levels continued supporting pricing power, with housing prices rising 5-13% year-on-year across the top seven cities during CY25, further intensifying affordability challenges for potential buyers.

Market Outlook and Strategic Recommendations

Nuvama maintains a cautious stance on real estate stocks despite recent valuation corrections since H1CY24. The brokerage expects muted volume trends to persist, with valuation multiples potentially facing continued compression due to growth visibility concerns.

For sustainable market recovery, Nuvama suggests developers should consider strategic recalibration by reducing luxury segment dependence and refocusing on mid-income and premium housing segments while improving affordability through contained prices and ticket sizes. Companies with substantial annuity or rental portfolios are expected to outperform pure-play residential developers in this environment, with Prestige Estates identified as the top sector pick due to its diversified business model and stronger earnings visibility.