Investing in Real Estate in India

Published on January 17, 2026 and written by Cyril Jarnias

Investing in Indian real estate is no longer just about betting on a few premium apartments in major metros. Behind the record sales and the upscaling of the residential market, another segment now concentrates the bulk of long-term potential: affordable housing. This is where a large part of the growth in real estate is playing out, but also the country’s social stability and economic trajectory.

A giant real estate market, driven by urbanization and growth

Real estate in India is already a pillar of the economy. The market size is estimated at $482 billion in 2024 and is expected to cross the $1 trillion threshold by 2030, with an annual growth rate of around 10 to 15% according to projections. At that point, the sector’s contribution to GDP – about 7% today – could climb to 13% by 2030, and up to 18% around 2047.

Residential remains the dominant market segment, with sales reaching a 12-year high in 2024 (over 350,000 units sold in major cities). But the structure of supply has clearly shifted towards premium and luxury products, to the detriment of the affordable segments. However, it is precisely at the bottom of the pyramid that demand is exploding.

Affordable Housing: A massive deficit… and a market of 67 trillion rupees

While India posts record sales in the high-end segment, affordable housing shows a structural deficit. The country faces a shortage of at least 10.1 million units in this segment. Adding future demand, the “cumulative demand” for affordable housing – urban and rural – is estimated between 30.7 and 31.2 million units by 2030.

The table below helps visualize these magnitudes.

Key Affordable Housing Indicator	Estimate by 2030
Current Housing Deficit (units)	10.1 million
Estimated Cumulative Demand (units)	30.7 – 31.2 million
Potential Market Size	67,000 Bn INR
Current Loan Portfolio	13,000 Bn INR
Potential Financing Opportunity	44,000 – 45,000 Bn INR

Despite these numbers, private capital remains timid: between 2011 and 2024, capital flows into this segment reached only $1.9 billion. This represents barely 7.8% of flows into residential real estate broadly and only 3.6% of total real estate investments. Foreign funds, meanwhile, accounted for barely over 10% of this sub-sector in the recent period.

In other words, capital supply has not yet caught up with the scale of demand, creating a blind spot… but also a window of opportunity for investors capable of structuring solid projects.

The State’s Strategy: “Housing for All” and the PMAY Architecture

India does not leave this issue to the market alone. The state has placed housing access at the heart of its long-term vision, within the framework of the so-called 25-year “Amrit Kaal” period, with a clear goal: “Housing for All”.

The cornerstone of this strategy is the Pradhan Mantri Awas Yojana (PMAY), launched in 2015. It has two components – urban (PMAY-U) and rural (PMAY-G) – and initially aimed to build 20 million affordable urban homes and 30 million in rural areas by 2022. In practice, over 12 million homes have been approved and around 6.4 million delivered by 2024.

The program’s mechanics rely on four main “pillars”:

In parallel, other schemes target the rental stock: Affordable Rental Housing Complexes, launched in 2020, and the National Urban Rental Housing Policy since 2021, aimed at structuring a real rental market for vulnerable and migrant populations.

The state has also granted affordable housing “infrastructure status,” allowing projects to access lower borrowing costs and attract institutional capital, including foreign capital.

RERA, Taxation, Priority Lending: An Increasingly Structured Environment

For an investor, investing in real estate in India – and particularly in the affordable segment – cannot be done without looking at the regulatory and tax arsenal governing the sector.

In terms of transparency, the Real Estate (Regulation and Development) Act (RERA), enacted in 2016, is a game-changer. It requires project registration, disclosure obligations for developers, regulation of buyer advances usage, and a grievance redressal mechanism for buyers. The Supreme Court has even clarified that RERA prevails over certain debt recovery legislation when buyer rights are at stake.

Affordable housing also benefits from a specific classification in the harmonized list of sectors eligible for “Priority Sector Lending” (PSL). Concretely, this requires banks to allocate a portion of their credit portfolio to this type of project, with loan limits raised by over 40% starting FY2025. In cities with over 5 million people, a PSL loan can now reach 5 million rupees for a home costing up to 4.4 million.

For foreign investors, the environment is also defined: the Foreign Exchange Management Act (FEMA), the Consolidated FDI Policy, the Reserve Bank of India’s oversight, and SEBI’s regulation of REITs and alternative investment funds set a clear, albeit complex, framework.

Overwhelming Urban Demand… Driven by the Most Modest Households

The core of affordable housing demand is in cities. Estimates indicate that about 22.2 million units will be needed in urban centers by 2030, of which over 95% – nearly 21.1 million – are in the affordable category. Nearly half of this urban demand (45.8%) will come from households classified in the Economically Weaker Section (EWS).

In rural areas, the challenge is different but equally massive. Needs focus more on improvement, extension, and formalization of housing. PMAY-Gramin and rural housing funds target these issues, with an interesting collateral effect: 74% of homes approved under the rural component of PMAY are owned by women, singly or jointly, which strengthens women’s economic empowerment.

The Market Paradox: Premium Boom, Affordable Brake

Looking at recent dynamics in major cities, one might think the Indian real estate market is enjoying a golden age without clouds. Median prices rose by 3.1% on average nationally in early 2024, but some areas saw much more: over 49% annual increase in Delhi-NCR over a period, 39% in Pune, over 30% in Kolkata, and over 80% over five years in Hyderabad. Luxury home sales (over 4 crore rupees) surged by over 50% in 2024.

In the second half of 2024, homes priced above 10 million rupees accounted for nearly half of sales in major cities, and in the first nine months of 2025, this premium segment gained further market share, reaching over 60% of transactions.

For developers, the combination of rising land costs, material inflation, and regulatory price caps on “affordable” homes erodes margins to the point of making the model unattractive. Some private players have withdrawn from the segment, leaving it to public entities and social impact businesses to meet demand.

Affordability, Rent, and Credit: A Tight Equation for EWS Households

For an investor, affordable housing may seem less attractive than luxury at first glance. Average rents in India generate a gross yield of 3 to 5% depending on the city, and property taxes, maintenance charges, or vacancies further reduce this net yield.

However, this segment has particular characteristics. First, demand is structural and less cyclical: even during a slowdown, demographic pressure and internal migration support occupancy and rents. Second, in many peripheral areas of metros like Pune, Hyderabad, or Bengaluru, rental yields on small homes (1 or 2 rooms) can approach those of some offices, while requiring a much lower entry ticket.

It is precisely to ease this constraint that public subsidy and assisted credit schemes are essential. They act as a “cushion” that makes projects bankable from the banks’ perspective, while keeping monthly payments manageable for the borrower. For an institutional investor, aligning with these mechanisms – via housing microfinance products, specialized debt funds, or co-financing with the National Housing Bank – becomes a key lever.

Structural Hurdles Weighing on Investment

Beyond the profitability question, several structural obstacles still hinder investors in affordable housing.

The land issue is central. Fragmented property titles, overlaps between state and national legislation, and land use conflicts slow down the acquisition of serviced land at reasonable cost. Approval procedures are lengthy, involving multiple authorities, which increases project financial costs and raises the risk of delays.

Finally, developer access to finance remains more complex in this segment, where margins are thinner and the perception of risk is higher. Banks and private investors still favor premium projects, perceived as more profitable in the short term.

Solutions: Technology, PPPs, and Financial Innovation

To bridge the gap between social needs and the economic logic of investors, several paths are emerging.

The first is technological. Adopting industrialized construction methods – prefabrication, pre-engineered components, 3D modules – can reduce costs and timelines. According to some estimates, combining these technologies with a relaxation of urban planning rules, for example via a free 50% increase in the Floor Space Index (FSI), could lead to an approximately 24% reduction in construction cost per home.

The third dimension concerns financing. Alongside banks and Housing Finance Companies, innovative mechanisms are emerging: impact investing, blended finance combining grants, patient capital, and debt, housing-focused microfinance, or “housing trust” type vehicles. Institutions like the Asian Infrastructure Investment Bank are already participating in projects targeting affordable and green housing, providing credit lines to players such as IIFL Home Finance.

The table below summarizes some identified solution levers.

Solution Axis	Desired Effect
Industrialized Construction	Lower costs, reduced timelines
Free FSI Increase	Amortize land cost, densify without raising prices
PPPs and Public Land (PSU)	Share risk and capital, lower final price
Impact Funds & Blended Finance	Make low-margin projects bankable
Housing Microfinance	Finance informal and EWS households
Targeted Satellite Towns	Create well-connected affordable housing hubs
Single-Window Clearance	Shorten and secure approval timelines

Where to Invest Practically: Metros, Peripheries, and Tier 2 Cities

Investing in Indian real estate with an affordable housing focus does not mean limiting oneself to slums or large standardized complexes. Strategic locations typically combine these elements: accessibility (metro, highway, express corridors), proximity to job hubs (industrial zones, IT parks, logistics hubs), and still reasonable land prices.

In Bengaluru, the ring around Sarjapur Road or Electronic City still offers reasonable entry tickets compared to central areas, with rents supported by the influx of young tech professionals. In these markets, the challenge for the investor is to target compact, well-connected products backed by solid developers, rather than chasing hyper-luxury projects.

For the foreign investor or NRI, these markets may seem less readable than Mumbai or Delhi, but they often offer a better combination of rental yield, appreciation potential, and moderate risk.

The Growing Role of REITs and Listed Structures

Even though most current Indian REITs remain focused on offices and malls, their development has an indirect impact on affordable housing. By offering developers a structured exit (via the sale of stabilized assets to a listed vehicle) and attracting institutional savings into real estate, these vehicles free up capital for other segments, including affordable residential.

In the medium term, the rise of “SM REITs” (Small & Medium REITs), with a lower asset threshold, could pave the way for portfolios including residential assets, even affordable housing estates generating stable rents.

FDI Framework, NRI, and Taxation: What Foreign Investors Need to Know

Investing in Indian real estate as a non-resident involves navigating a set of rules, but the country has gradually relaxed its regime.

For individuals, Non-Resident Indians (NRI) and Overseas Citizens of India (OCI) have the same rights as residents to buy residential or commercial properties, with no limit on the number, provided they comply with reporting obligations and regulated banking channels. However, they cannot directly acquire agricultural land or plantations. They have access to local home loans, generally up to 80% of the property value, and can repatriate up to one million dollars per year from sale proceeds, after payment of applicable taxes.

For those specifically targeting affordable housing, it is crucial to verify that projects meet the eligibility conditions for favorable tax regimes and subsidies, as these elements directly impact the repayment capacity of end-buyers – and thus the liquidity of the exit.

Real Risks, Myths, and Prudent Management

Indian real estate carries a reputation for complexity and risk: slow judiciary, disputed property titles, local corruption, project delays, abrupt changes in tax or regulation. Some of these fears are based on well-documented realities; others stem from a perception inherited from earlier, less regulated phases of the market.

Nevertheless, ignoring these risks would be a mistake. Studies still point to the existence of hundreds of thousands of unsold homes in the top seven cities, the possibility of price correction cycles, and spectacular underperformance of some real estate-linked stock indices during bubble and burst phases.

In affordable housing specifically, a few additional precautions are necessary: verify the project’s anchoring in urban strategy (proximity to transport corridors, inclusion in satellite town planning, planned connection to utilities), ensure the business model integrates public subsidies as complements and not sole pillars, and confirm the robustness of the financial structure against possible construction cost increases.

Why Affordable Housing Remains the Long-Term Strategic Bet

Despite the difficulties, there are several solid reasons to consider affordable housing as a central axis for investing in Indian real estate.

The first is the depth of demand. Projections of 30 million housing shortfall by 2030 are not a marketing estimate, but the sum of an existing deficit and inevitable demographic flows. As long as the country continues to urbanize at this pace, this base need will be there.

The third is the nature of the flows. Well-designed and well-located affordable housing generates fast sales cycles, high occupancy rates in rental, and capital appreciation less spectacular than luxury but more regular. These characteristics make it a resilient asset, suited for long-term investment strategies, especially in a context where risk-free product yields remain moderate.

Finally, for institutionals committed to ESG criteria, this segment literally ticks all the boxes: direct social impact (housing access), support for gender equality (via programs targeting female ownership), contribution to sustainable urbanization when projects integrate green standards, and anchoring in national public policies.

Towards a New Balance Between Market, State, and Private Capital

The coming years will be decisive in determining whether India succeeds in transforming affordable housing into a true mass investment asset, on par with prime offices or logistics.

For those considering investing in real estate in India today, the easy path would be to focus only on the most visible niches – Grade A offices, luxury homes in a few iconic zip codes, or well-established REITs. But it is by looking at affordable housing, its current weaknesses and its structural strengths, that the opportunities most aligned with the major underlying trends of the Indian economy emerge.

Investing in Indian real estate is therefore also – and perhaps above all – learning to read the affordable housing market: its numbers, its public policies, its constraints, its emerging business models. Those who can do so with rigor and patience may well find not only a financial return, but also a central role in the country’s urban transformation.