Overcoming conflict and capital shocks in the resilient Indian property sector

Construction Cost Crisis

The US-Iran war has sent shockwaves through global supply chains, driving Indian construction costs up by over 25%. This steep inflation stems from surging crude oil prices, shipping bottlenecks, and volatile exchange rates, which have escalated expenses for logistics, labour, and gas-dependent materials. 

Developers face unprecedented shortages of steel, electrical components, and fuel, putting immense strain on project viability. Major listed players including Lodha, Oberoi Realty, and Rustomjee warn that procurement challenges threaten delivery schedules. 

With domestic logistics costs rising 15-18%, suppliers frequently revise prices, forcing builders to reorganise schedules, accelerate domestic sourcing, and prepare for further financial pressure if the USD continues to spike. Property prices could rise 10-12%, while project timelines face delays of 4-6 months. 

Divestment Blitz

This crisis has also strained federal finances, prompting an aggressive divestment blitz in state-run enterprises to fund public spending and manage deficits. 

New Delhi aims to raise INR 50 billion by selling 2% of Coal India, INR 100 billion by offloading 2% of Life Insurance Corp., and INR 23 billion through an 8% stake sale in Central Bank of India. 

Although currency depreciation has hindered local shares, a tentative 60-day US-Iran ceasefire extension has marginally lowered oil prices, offering a fragile window of stability.

Seeking relief from these operational hurdles, CREDAI approached the Union Housing Ministry, state regulators, and local authorities for a blanket 3-6 month project timeline extension under force majeure provisions. 

However, regulators remain cautious. The Gujarat Real Estate Regulatory Authority (GujRERA) has requested details on timeline extensions for government civil works from the state's roads and buildings department to establish a local precedent. 

While the central government has granted two-to-four-month extensions for certain federal projects, GujRERA notes that no state RERA has issued a blanket extension, adding that developers often buffer completion dates during registration and that marketplace impacts have recently begun easing. 

Billionaire Boom

Amidst these hurdles, CREDAI President Shekhar G Patel notes the residential market is entering a more balanced growth phase for FY27, aided by a 125 basis point repo rate reduction to 5.25%. 

This follows a significant boom in the first quarter of 2026, with prices across major urban centres rising 3% to 24% year-on-year, driven by metro connectivity, new expressway corridors, and tech jobs. 

Bengaluru led with a 24% appreciation to an average of INR 9,785 per square foot, followed closely by the Mumbai Metropolitan Region at 20%. Other top performers include Delhi-NCR, Hyderabad, Pune, Chennai, Ahmedabad, Kolkata, Lucknow, and Jaipur. 

This surge is reinforced by an accelerating billionaire boom; Knight Frank forecasts Indian billionaires to rise 51% from 207 in 2026 to 313 by 2031. This wealth surge drives demand among ultra-high-net-worth individuals, entrepreneurs, and non-resident Indians (NRIs) for bespoke, experience-led homes. 

In premium markets like Gurugram and the Noida Expressway, developers offer low-density layouts, private lifts, dedicated lobbies, and concierge services, as affluent buyers prioritise privacy, rarity, and globally benchmarked hospitality over size. 

Long-term investment from Gulf-based NRIs, who command the majority of the 15-20% NRI market share, remains firmly intact.

Yet at the same time, Patel notes that the affordable housing sector faces structural viability challenges from rising land prices, inflation, and an outdated INR 4.5 million affordability threshold that impacts first-time buyers, alongside reverse labour migration and commodity inflation.

Commercial Crunch

Concurrently, the commercial sector is enduring an acute structural liquidity crunch. A Knight Frank report highlights a stark decoupling where record-high occupier demand for office and warehousing spaces outstrips institutional capital. 

While annual office absorption hit 86.4 million square feet, private equity investment collapsed by 29% year-on-year to USD 3.5 billion due to risk repricing, currency depreciation, rigid regulations, and high debt costs. 

This constraint dragged the office supply-to-demand ratio to a historic low of 0.63x, leaving India with just USD 23.2 of available capital per square foot of office demand, a fraction of the depth seen in Japan, Singapore, and Australia. 

Although Alternative Investment Funds (AIFs) have scaled rapidly to institutionalise alternative capital, they face maturity mismatches, illiquid assets, and deployment gaps. 

The remaining USD 2.3 billion in liquidity can only support 12.2 million square feet of new development, elevating insolvency risks for mid-sized builders, threatening steep rental escalations across top-tier metros, and risking a sector oligopoly of well-capitalised developers.

Motorways and Megabytes

Powering this real estate evolution is a massive physical and digital infrastructure expansion. Eight critical expressway corridors, including the Delhi-Mumbai, Dwarka, Mumbai-Nagpur Samruddhi Mahamarg, Yamuna, Bengaluru-Mysuru, Eastern Peripheral, Purvanchal, and Ahmedabad-Vadodara expressways, are drastically reducing transit times and creating investment micro-markets. 

Simultaneously, Global Capability Centres (GCCs) are transitioning from low-cost outsourcing units into high-value innovation hubs. 

Projected to reach USD 100-110 billion by 2030 and accounting for 50% of the global market, GCCs have leased nearly 100 million square feet of office space since 2021, with 60-65 million square feet of further absorption expected over 2026-27, shifting commercial demand toward peripheral clusters, emerging nodes, and tier-2 or tier-3 cities, while accelerating adjacent residential and social infrastructure.

Digital infrastructure is expanding at an equal pace. According to Cushman & Wakefield's 2026 report, India ranks second in the APAC data centre market with 1.6 GW of operational capacity and a 3.1 GW pipeline, driven by rapid AI adoption and hyperscale cloud expansions. 

Development is expanding from primary hubs like Mumbai, which will exceed 1 GW of capacity by the end of 2026, into secondary markets including Chennai, Delhi NCR, Pune, and Hyderabad, with the latter ranking ninth globally among secondary markets. 

Vacancy rates tightened to 12.9% as of Q4 2025, but the market remains underpenetrated, with 10.5 GW of capacity at the land stage. Supported by the Draft National Data Centre Policy 2025, which offers up to 20-year tax exemptions and GST input tax credits, the sector leverages India's high electricity production growth despite 14.2% grid transmission losses.

Outlook

Ultimately, India's real estate narrative in 2026 is defined by profound structural resilience operating under global duress. While geopolitical conflicts and capital constraints impose strict operational boundaries, the fundamental domestic demand, driven by infrastructure, technology, and wealth creation, continues to permanently reshape the urban landscape.

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