Small Developers Face The Heat Amid India’s Luxury Real Estate Boom

On an early March morning, Jamshed Ahmed, a builder and co-owner of Gurgaon-based J3 Design Expansion, gears up to visit his latest project. The housing development project in Gurugram has 10 flats valued at around Rs 1 crore each, but Ahmed, who has been in the construction and real estate industry since 2010, is worried about selling them.

Ahmed has been primarily taking on entry-level or affordable housing projects with his father, who started the company in 1984 — a period that saw a massive real estate boom following India's economic liberalisation.

For years, Ahmed and other builders thrived during the pockets of India’s real estate boom, like the one that followed the pandemic. But now, there is a significant challenge looming over the sector. The latest data shows that Ahmed’s worries about not selling the houses in his latest project aren’t unfounded.

Not only did the housing supply in the top nine cities fall by 34%, but sales declined by 23% in the last quarter of FY 2025. Among the top nine cities, only Bengaluru was an exception to this trend while Hyderabad, Chennai, Kolkata, Pune, Thane, Navi Mumbai, Mumbai, and Delhi-NCR saw a decline in either supply or sales or both.

Real estate data analytics firm PropEquity also found that housing supply during this time dropped to 80,774 units compared to 1,22,365 units in the same period last year, marking the third consecutive quarter of sub-100,000 unit launches. Housing sales fell to 105,791 units this year from 136,702 units during this quarter in 2024.

Within the real estate segment, entry and mid-level homes have been affected the most while luxury real estate has thrived. Not only are home buyers affected by this, but real estate businesses are impacted too.

Where Are The Affordable Homes?

According to the National Real Estate Development Council, in 2018 and 2019, the affordable housing segment made up nearly 40% of the total housing supply, with cities like Pune, Kolkata, Chennai, and NCR consistently seeing high availability, driven by incentives such as lower GST rates and tax breaks. Of the estimated 2.37 lakh new unit launches in 2019 across the top seven cities, around 92,000 units (40%) were in the affordable segment, ( priced below Rs 45 lakh) followed by the mid-segment with a 33% share (priced between Rs 45 lakhs and Rs 1.5 crore). The luxury and ultra-luxury segments accounted for the smallest portion, contributing just 10% with approximately 23,000 new units.

Ahmed said that entry-level houses priced below Rs 50 lakh were abundant in areas like Gurugram and Delhi in the past decade but now it was nearly impossible to build houses in this range in Gurugram or any prime location in Delhi.

"The prices have gone up significantly," he told The Core. "A house that cost Rs 55 lakh a few years ago now costs nearly Rs 1.5-2.0 crore."

Between August 2022 and 2024, property prices in India's top eight cities surged by over 30%, more than twice the growth rate recorded in the previous two years, according to a report by Magicbricks. The report, Housing Affordability in Major Indian Cities, also highlighted that even tier-2 cities such as Gandhinagar, Bhubaneswar, and Patna experienced similar price hikes. This sharp increase outpaced the rise in nominal per-capita income across several major cities, raising concerns among buyers looking for affordable homes.

Dr Ismail Haque, a faculty member at Jamia Millia Islamia and a real estate expert, said that inflation and escalating costs of affordable housing have significantly impacted the industry. "Profit margins in entry-level housing have declined, and high land acquisition costs have shifted the entire paradigm," he explained.

The segment, once contributing over 40% of total units, is now seeing reduced supply, creating pressure within the industry and potentially discouraging foreign investments. Rising input costs — land, labour, and materials — along with the withdrawal of fiscal benefits, have led developers to shift focus from affordable housing to larger units with better amenities, which continue to sell well.

Small Players Face The Heat

By 2024 and early 2025, cities like Bengaluru had no new supply in the affordable segment, while Hyderabad and Chennai recorded just a 2% share. Only Kolkata and MMR (Mumbai Metropolitan Region) showed notable activity, with about 31% of upcoming housing priced below Rs 40 lakh. NCR saw a sharp decline in affordable housing, with its share dropping from 62% in 2020 to just 11% in 2024. The region is now showing a stronger inclination towards luxury properties. In 2024, the NCR's residential sales were valued at Rs 90,000 crore — 32% higher than in 2023 — making it second only to MMR in value terms.

Rising costs and urbanisation have made it difficult to develop affordable housing in city centres. As a result, builders often construct projects in peripheral areas with inadequate infrastructure, leading to a decline in demand. Anuj Puri, chairman of ANAROCK Group, explained that several factors have led to this. "Rapid urbanisation has pushed affordable housing to peripheral locations with inadequate infrastructure, making these projects less attractive despite lower prices," Puri told The Core.

Puri added that consumer preferences have shifted toward larger living spaces after the pandemic, impacting demand.

As per ANAROCK Research, approximately 51% of the available inventory or unsold houses (cumulative of top 7 cities in India – Bengaluru, Chennai, Hyderabad, MMR, NCR, Pune and Kolkata) is concentrated in the affordable)

The unsold inventory has put pressure on smaller real estate businesses, which are struggling with operational challenges due to the slowdown in affordable and mid-segment housing sales. These firms, often operating with limited capital reserves, depend on steady cash flows from project sales. With a decline in transaction speed, some are facing liquidity constraints, making it harder to finance ongoing projects. As a result, many smaller developers are dealing with delayed project timelines, rising carrying costs, and shrinking profit margins. Some are being forced to exit the market or merge with larger firms that have stronger financial backing. In 2024, Top Indian cities like Bengaluru, Chennai, Hyderabad, MMR, NCR, Pune and Kolkata reported about 1 million unsold housing units which has created a huge problem for small builders.

Mohit Nagar, a builder from Greater Noida who has been running his family business the 30-year-old firm Shree Laxmi Builders for the last 10 years said developers were reducing sizes of homes to keep production costs in check. While these homes meet certain budgets, buyers want more for their money.

Nagar admitted that demand has dropped significantly, leaving them uncertain about the future. “We still build affordable and mid-segment houses, but they are becoming increasingly difficult to sell. Buyers expect amenities that are not feasible at this price point, and many of our flats remain unsold for months, creating severe capital issues since we rely entirely on sales revenue,” he said.

Mohammad Haris, a media professional from Bihar who has been living in a rented apartment in the Delhi NCR region for the past six years, has been searching for a home under Rs 60 lakh for the last two years. However, he has been unable to find a suitable property within this price range.

"The houses I see under Rs 60 lakh lack basic amenities, and the ones that do have amenities are priced over Rs 1 crore, which I simply cannot afford," he said. Haris had hoped to buy a house in areas like Jamia Nagar or Noida, but given the skyrocketing prices and limited supply from builders, that now seems impossible.

He currently pays Rs 15,000 in rent and initially thought that with a down payment, his rent amount could instead go toward EMI payments for a home. However, he hasn’t found a property within his budget that matches the quality of his rented apartment. "Even the houses I can afford are in far-off locations, making it an impractical choice," he added.

Imbalance In The Industry

Since the share of mid-level and entry-level (affordable) housing in total sales has declined in recent years, luxury (over Rs 1.5 crore) segments are driving sales. This shift has created a structural imbalance in the industry's growth trajectory. While the overall real estate market has shown value appreciation, the volume growth has become increasingly concentrated in higher-price segments. The gap between established developers with premium portfolios and smaller players focused on affordable and mid-segments has widened and also potentially reduced housing options for middle and lower-income buyers.

Puri considers this imbalance a concern for the industry. He said the large volume of unsold inventory ties up capital, making it difficult for smaller developers to launch new projects or complete existing ones. "The carrying costs of unsold inventory — such as maintenance, security, and interest payments — are eating into already thin profit margins," he explained.

Many small developers, he noted, are struggling with prolonged sales cycles that were not factored into their financial plans, pushing some toward insolvency. “This is not a good sign, as it widens the gap between large and small developers and could ultimately crush small-scale builders, who form the backbone of this industry,” he warned.

Smaller Players Face Pressures

Small developers either leaving the business or consolidating with bigger businesses because of financial pressures has also contributed to shortages in the affordable housing segment.

Over the past two years, the supply of homes priced at Rs 1 crore and below has decreased by 36%, dropping from 3,10,216 units in 2022 to 1,98,926 units in 2024, according to PropEquity. The steepest declines were in Hyderabad (69% decline to 13,238 units), Mumbai (60% drop to 6,062 units), and NCR (45% fall to 2,672 units). Conversely, luxury housing (Rs 1 crore and above) surged by 48% across key cities. Bengaluru and NCR saw the highest rise at 187% and 192%, respectively, while Chennai noted a 127% increase. Pune, Thane, and Navi Mumbai also saw over 50% growth.

Atul Soni, a real estate analyst with Morgan Stanley Capital International based in Mumbai, noted that the decline in demand for affordable housing has left lakhs of mid-range and budget homes unsold. This, he explained, has caused a cash crunch for small-scale developers, making it difficult for them to sell properties and fund new projects. “As a result, not only has demand dropped, but supply has also fallen compared to previous years,” he said. He warned that this situation has made the industry highly sensitive and vulnerable to a financial crisis.

According to PropEquity, over 50% of the developers that existed in India's top nine cities in 2011-12 exited the market by 2017-18. While specific data on the number of real estate builders exiting the Indian market post-2022 is not readily available, certain trends offer insights into the industry's dynamics during this period. The number of projects registered with the Real Estate Regulatory Authority (RERA) declined by 21% between 2022 and 2024, following a significant growth of 145% between 2020 and 2022.

Soni said the decline in RERA-registered projects suggests that many developers have exited the market. He explained that builders are not receiving the same market response as before, and new buyers are not as readily available. “The most vulnerable players in such situations are small-scale builders,” he said.

A Noida-based builder, who wished to remain anonymous, shared his disappointment over leaving the real estate market. He recalled how he had successfully sold over 100 flats between 2010 and 2020 before Covid-19 hit. “All my houses were priced below Rs 50 lakh, with only a few exceeding that mark. But in the last two to three years, demand for affordable housing has declined. Buyers are reluctant to invest in the Rs 50 lakh range as rising production costs mean fewer amenities than before,” he explained.

He said that selling his last project was a struggle, as he had to wait for months to find buyers, which disrupted cash flow and forced him to halt new projects in early 2023. “I barely managed to sell my last project of seven flats and even incurred some losses. That’s when I decided to exit,” he admitted. The builder also noted that he wasn’t alone — many others, especially those in the affordable housing segment, had left the market post-Covid due to falling demand, while others remained stuck in debt.

While the real estate industry struggles with challenges in the low-segment housing market, and developers face financial distress, Puri suggested that they should focus on creating well-sized homes with essential amenities to maintain affordability while adapting to changing lifestyle needs. He also said financial institutions needed to introduce mortgage products tailored for informal sector workers with irregular incomes.

“The government should speed up planned infrastructure development in peripheral areas, as this would make these locations far more attractive,” he stated. Additionally, he pointed out that incorporating sustainable building practices could help reduce long-term maintenance and utility costs, ultimately improving the value proposition for budget-conscious buyers.