Summary of this article
Real estate and ownership of dwellings have contributed ~7 per cent to India’s GVA on average over the last decade, underscoring its macroeconomic importance.
Structural reforms like RERA, GST and Housing for All have driven formalisation, transparency and improved access to housing finance.
Housing demand has remained resilient post-Covid, supported by higher household savings, easing inflation and favourable affordability conditions.
As per the Economic Survey 2025-26, the ‘real estate and ownership of dwellings’ sector have contributed about 7 per cent to annual GVA (Gross Value Added), on average, over the past decade, highlighting its importance in services-led growth and strong linkages with construction and financial services.
Over this period, policy reforms, including the implementation of the Real Estate (Regulation and Development) Act (RERA), GST, and the Housing for All mission, have supported greater formalisation of the sector. Demand-side measures, such as interest subvention under PMAY (Urban), the Affordable Housing Fund, lower interest rates, and streamlined credit processes, have further strengthened access to housing finance. Urban initiatives, such as the Smart Cities Mission and the Urban Infrastructure Development Fund (UIDF), have supported housing demand in Tier 2 and Tier 3 cities.
Backed by these reforms, the sector entered a sustained upcycle from September 2021, post-COVID, as reflected in improved sales, driven by higher household savings channelled towards physical assets. The momentum has continued in recent quarters, supported by favourable affordability conditions and easing inflation.
On average, housing volume sales continue to remain higher compared to FY22-FY24. Housing finance also expanded steadily, with outstanding individual housing loans more than tripling from about Rs 10 lakh crore as at the end of March 2015 to over Rs 37 lakh crore at end March 202540, raising housing loans from 8.0 per cent to over 11 per cent of GDP, indicating a deeper financialisation of housing demand.
Land As Dead Capital
In economic parlance, dead capital refers to assets that are unable to function as productive capital. These resources are unable to contribute to economic activity due to being constrained by regulatory, legal, or market inefficiencies. In many of our cities, land has effectively become dead capital due to a combination of restrictive land-use regulations, title insecurity, and fragmented markets, as well as speculative incentives that lead to low land recycling.
Restrictive land-use regulations in the form of Development Control Regulations (DCR), such as low floor space index (FSI) or floor-area ratio (FAR), place a cap on the amount of built-up area per unit of land, constraining vertical development and forcing spatial expansion outward rather than upward. This distortion raises land values and creates artificial scarcity in core urban areas. Compared to global cities like New York and Hong Kong, India’s cities have relatively lower FSI, with exceptions for denser areas such as central business districts. When the FSI is low, settlements are incentivised to expand horizontally, driving up average land cost and increasing infrastructure delivery costs per unit of housing or commercial space. This limits housing supply and raises prices relative to incomes.
Many state governments and urban bodies are addressing and modifying DCRs and granting additional FSI for a premium on a piecemeal basis. However, a holistic rethink will be required for meaningful change at scale. For example, the Chennai Metropolitan Development Authority (CMDA), in drafting its third master plan, is reportedly considering a higher FSI in key zones, mixed-use development, and phased upgrades to support compact and vertical growth across the city. Urban bodies and state governments can leverage MoHUA’s resources, such as the guidance document on preparing transit-oriented development (TOD) plans, in optimising city densities.
