Affordable Housing Lags Despite RBI’s 125 bps Easing in 2025

Despite a cumulative 125 basis point repo rate cut in 2025, affordable housing (

, , ) remains under pressure due to muted price appreciation, credit constraints, and weak policy traction. While lower rates may support demand marginally, structural challenges and investor preference for premium segments continue to limit recovery. - RBI Rate Cuts and Sensitivity Analysis The repo rate now stands at 5.25% after a 25 bps cut in December. Historically, every 1% cut in base lending rates results in a 0.24% increase in priority-sector home loans. However, this transmission is slow and uneven across housing categories. - Muted Price Appreciation in Budget Segment Between 2022 and 2025, affordable homes (<₹40 lakh) saw just 26% price appreciation, compared to 39% for mid-premium and 40% for luxury homes. This reflects weaker demand and limited investor interest in the budget segment. - Structural Headwinds Persist Elevated land acquisition costs, limited creditworthiness of buyers, and muted response to PMAY 2.0 have constrained affordable housing finance. Developers remain cautious due to thin margins and slower inventory turnover. - Demand-Supply Imbalance and Policy Gaps Despite policy support, supply-side challenges and lack of targeted incentives have kept affordable housing from scaling. The segment remains underserved, especially in Tier 1 cities where land and compliance costs are high. Analysts believe a shift back to budget housing is unlikely unless demand in mid and luxury segments cools. Growth targets for FY26 remain at 18–20%, but skewed toward higher-value categories. A favourable rabi season and easing crop protection inventory may support rural housing demand indirectly.