Compact Homes Emerge As The Cornerstone Of India’s Next Residential Growth Phase

India’s residential real estate market is showing signs of steady stabilization, with compact and affordable homes driving the latest wave of buyer interest. According to Magicbricks’ PropIndex report for July–September 2025, housing demand rose 3.1 per cent quarter-on-quarter despite affordability headwinds, while the share of 1–2 BHK units climbed to 54 per cent of total demand—marking a return to affordability after two years of premium-led growth.

Commenting on the findings of the report, Sudhir Pai, CEO, Magicbricks, says the market transformation that began in July to September 2025 demonstrated a clear preference for smaller and medium-sized residential properties.

“People choose their homes based on affordability but infrastructure development together with changing consumer needs creates ongoing demand for key local markets. Developers who align product offerings with affordability and lifestyle needs will define the next phase of sustainable housing growth,” he adds.

Ajay Malik, Chief Strategy Officer, RISE Infraventures, observes the 54 per cent surge in 1–2 BHK demand isn’t just a statistic—it’s a clear sign of how buyers are thinking differently today. End

“End-users are weighing rising interest rates and living costs, but they’re also focused on asset ownership. Against this backdrop, compact homes are emerging as the sweet spot, offering both affordability and lifestyle convenience, especially near employment corridors like Dwarka Expressway, Noida-Greater Noida Expressway, Yamuna Expressway, and key transit hubs,” Malik says.

Besides, developers are responding with efficient layouts, amenity-rich micro-projects, and flexible payment plans across cities like Bengaluru, Pune, and NCR.

“While affordability pressures triggered this trend, we believe it’s evolving into a structural shift rather than a temporary correction. Micro-markets with strong connectivity and strong social infrastructure are witnessing the sharpest uptake, revealing that compact homes are the new mainstream choice," he adds.

Taking a cue from shifting consumer preferences, many real estate developers across the country are now focusing on compact and affordable homes.

For instance, seeing the next big growth driver in mid-income housing, the Bengaluru-based Prestige Group is expanding its portfolio to include more affordable homes across major cities to cater to a wider buyer base.

Robin Mangla, President, M3M India, says, “The surge in demand for 1–2 BHK homes reflects India’s evolving lifestyle and income dynamics. Compact, well-planned spaces offering modern amenities and efficient layouts are becoming the new urban norm. The focus is shifting toward affordability without compromise—creating value-driven options for first-time buyers and young professionals alike.”

Is The Shift Toward Smaller Homes A Temporary Correction?

According to industry experts, this shift is clearly a long-term structural transformation in India’s housing market, not a short-term adjustment.

Urban migration, changing household structures, and the growing preference for manageable, efficient homes are reshaping India’s housing priorities. Compact formats meet both aspirational and practical needs, ensuring continued momentum in this segment across all major cities.

Future Outlook For Compact Homes

In the current scenario, the industry outlook for compact homes remains highly promising.

“With affordability becoming central to buying decisions, this segment will witness sustained growth. Smart layouts, community-driven living, and improved connectivity are enhancing their appeal—positioning compact homes as the cornerstone of India’s next phase of residential expansion,” says Mangla.

Dr. Vishesh Rawat, VP & Head of Marketing, Sales & CRM, M2K Group, says compact homes are gradually becoming the talk of the town, as buyers increasingly favour 2 BHK units that offer financial ease without compromising on quality or location. Catering to consumer demands, developers are innovating with space-optimised designs, integrated amenities, and phased delivery models.

“Affordability challenges and interest rate shifts are further nudging buyers toward smaller units. Hence, we see this trend as long-term, reflecting India’s growing preference for compact, well-located, and lifestyle-aligned homes,” adds Rawat.