India's real estate development sector is experiencing significant headwinds as market sentiment deteriorates and operational challenges mount. The BSE Realty Index has declined more than 30% from its peak in June 2024, reflecting growing investor concerns about the sector's fundamentals.

Market Performance and Valuation Concerns

The post-pandemic boom that drove property stocks higher has given way to more challenging market conditions. Retail investors who had accumulated substantial gains during the pandemic years initially drove demand for new homes, leading to aggressive land acquisition and project launches by developers. However, equity market froth has since become a drag on investor returns, while affordability concerns have emerged for the middle class amid white-collar wage pressures.

The market has been sustained primarily by ultra-high-net-worth buyers, particularly those purchasing homes priced above ₹10 crore in major urban centers like Mumbai. This extreme wealth concentration has helped prop up sales, though nationwide growth has now peaked.

Construction Completion Crisis

While unsold inventory appears manageable, with stock in the top eight metropolitan areas equivalent to 19 months of sales - the lightest load in at least 2 years - a more serious problem has emerged in project execution. Construction completion rates have deteriorated significantly over recent years.

According to property research firm Liases Foras, this slower construction pace creates multiple challenges:

• Delayed revenue recognition for developers
• Higher execution risk
• Potential payment defaults
• Compressed profit margins

Operational and Regulatory Challenges

Several factors are contributing to construction delays across major markets. In Delhi, hazardous air pollution has led to temporary construction bans, while Mumbai builders faced difficulties obtaining environmental clearances. The labor market presents additional challenges, with skilled workers like plumbers, electricians, and carpenters finding better opportunities in the gig economy compared to real estate projects.

Political initiatives providing direct cash transfers to women may also be affecting workforce participation, as women who traditionally work alongside their husbands in construction crews may be less inclined to work far from their villages. Women account for 11% of India's construction workforce, typically engaged in activities such as headloading materials, stone breaking, mortar mixing, and site cleaning.

Financial Pressures and Market Outlook

The combination of slowing demand and construction delays is creating funding pressures for developers. Annual price increases for homes under construction are insufficient to offset inflation or sustain speculative demand from buyers who book multiple apartments hoping to flip them before completion.

If construction continues at current pace, buyer confidence in financially weaker developers' ability to deliver finished homes may erode further. This could potentially challenge India's pre-sales model, where booking amounts are collected before construction begins.

While India has not reached the crisis levels seen in China - where China Vanke alone has $19 billion in presold properties pending delivery, equivalent to nearly a quarter's worth of residential sales across all Indian companies - market fear has clearly entered the sector. The focus now shifts to whether developers can improve operational efficiency to restore investor and buyer confidence.

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.