India's real estate sector is undergoing a notable transformation characterized by a shift towards value-led growth, as highlighted in a recent report by Infomerics Ratings. This shift is underpinned by robust institutional investments and a sustained demand for premium housing and office spaces, despite ongoing challenges related to affordability and financing. In 2025, institutional investments reached an unprecedented USD 8.5 billion, marking a significant 29 percent increase compared to the previous year. A majority of this capital, approximately 57 percent, originated from domestic sources, signaling a reduced reliance on foreign investments in the sector.
The office real estate segment has remained a focal point for investors, comprising 54 percent of total investments. This segment demonstrated strong operational performance, with net absorption rising to 61.4 million square feet in 2025, reflecting a 25 percent year-on-year increase. The demand from global capability centers and diverse occupiers has been instrumental in driving this growth, illustrating the sector’s resilience. Conversely, the residential real estate segment has experienced a shift in demand dynamics. While the overall value of homes sold surged by 6 percent to nearly Rs 6 lakh crore in 2025, the sales volumes declined by 12 to 14 percent across major cities. This trend indicates a transition from a volume-driven market to one focused on value appreciation.
Premium and mid-income housing have emerged as the primary catalysts for growth, with properties priced above Rs 1 crore accounting for over 60 percent of total transactions. In stark contrast, the share of affordable housing has dwindled to approximately 17 percent, reflecting persistent weaknesses in entry-level demand. Affordability remains a critical concern, as property prices continue to escalate faster than income growth, worsening the housing affordability crisis. The average price-to-income ratio rose to 7.5 times in 2024, up from 6.6 times in 2020, placing significant pressure on potential homebuyers in major metropolitan markets.
Despite monetary easing by the Reserve Bank of India, which has lowered borrowing costs, the combined impact of high property prices and stagnant income growth is anticipated to suppress demand in the short term. The report also notes a growing trend towards micro-market driven growth, with demand increasingly concentrated in areas linked to infrastructure and employment hubs. This shift reflects a market maturation where specific location attributes are becoming more relevant than generalized city-level trends. On the policy front, initiatives such as increased public capital expenditure, infrastructure development, and asset monetization through Real Estate Investment Trusts (REITs) are poised to support the sector's long-term growth. However, the lack of targeted incentives for affordable housing and ongoing regulatory complexities remain significant challenges. Despite these obstacles, the report concludes that India's real estate sector is on a solid growth trajectory, bolstered by urbanization, demographic shifts, and improving macroeconomic fundamentals.