Affordable homes lose investor appeal as luxury delivers higher returns

With luxury home prices rising faster than affordable units and branded developers driving demand in prime locations, investors are shifting towards premium and luxury housing

Affordable homes, priced under ₹40 lakh per unit, may not be attractive anymore, not just for developers but also for investors, with the segment seeing a 26 per cent price rise over three years since 2022 versus 40 per cent returns from luxury homes priced ₹1.5 crore and above.

 

According to real estate research firm Anarock data, luxury homes in India’s top seven realty markets saw their prices rise from ₹14,530 per square feet (sq ft) in 2022 to ₹20,300/sq ft for the year-to-date period of 2025. On the other hand, the price rise for affordable units was tempered at ₹5,299/sq ft for 2025 from ₹4,220/sq ft in 2022.

 

This divergence, industry executives say, comes on the back of demand for luxury homes outpacing that in other segments due to consistent appetite for bigger homes by branded developers in superior locations.

 

Aakash Ohri, joint managing director and chief business officer at DLF Homes, said that the growing significance of homeownership, bolstered by strong consumer confidence in the sector over recent years, has accelerated demand for luxury housing, leading to a sharp appreciation in prices across key NCR (National Capital Region) markets.

 

“Real estate has consistently outperformed other asset classes in terms of capital growth and rental yields, which has further strengthened its position as a preferred long-term investment destination for high net worth individuals (HNIs), ultra-HNIs, and non-resident Indians (NRIs),” he added.

 

Real estate developers say that high input costs, including materials and labour, have pushed up construction costs, squeezing margins to the extent that building homes for under ₹40 lakh is becoming unviable. The margin erosion is more severe in metros and Tier-1 and -2 cities, where land prices have escalated.

 

Anarock Chairman Anuj Puri added that the luxury segment, in particular, witnessed robust price escalation due to limited quality supply, rising aspirations, and a clear shift towards branded, amenity-rich developments. The luxury charge was led by Delhi NCR, where such properties clocked a price appreciation of 72 per cent, from ₹13,450/sq ft in 2022 to ₹23,100/sq ft, followed by markets such as Mumbai Metropolitan Region (MMR) and Hyderabad with a 43 per cent and 41 per cent rise in luxury prices, respectively, in the last three years. 

Affordable: Less than ₹40 lakh

Mid-sized: Between ₹40 lakh and ₹1.5 crore

Luxury: Above ₹1.5 crore

 

Even the mid-ranged and premium segment homes, priced between ₹40 lakh and ₹1.5 crore, saw their average prices rise 39 per cent across the top seven cities between 2022 and November 2025, again higher than affordable homes, thus making this segment the more likely option for realty investors.

 

Another executive added that despite the demand for affordable housing, and concerns of consumers getting priced out due to soaring prices, high-end housing in the mid and luxury segments will continue to see more traction.

 

“Developers in top markets may be prompted to increase supply of smaller apartment sizes to cater to the mid-income and premium segments (under ₹1.5 crore) to drive up volume sales,” Lalit Parihar of the Aaiji group said.

 

The key reasons for this, Puri said, was that the buyer demand after the pandemic got skewed towards large and listed developers, and large-size homes at prime locations, which continues even today.

 

“Homes by these branded developers come at a premium, which buyers are willing to pay. Further, given that input costs have risen significantly over the last three to four years, many homes that were earlier under the affordable budget bracket have moved up to fall within the mid and premium segments,” he added.