Housing Sales Fall 20% Across Top Cities—Is Commercial Real Estate The New Safe Bet?

Indian residential real estate is at the threshold of a phase of rebalancing. The recent figures point out that sales of houses in prime cities like Mumbai, Bengaluru, Delhi-NCR, and Pune have fallen as much as 20% year-on-year in the second quarter of calendar year 2025 (Q2 CY25) as per Anarock's Pan India Residential Market report.

Higher interest rates, higher input costs, and a fall in credit have been key drivers in the downturn, indicating a shift in buying sentiment from traditional residential property to relatively firmer channels of investment.

Mumbai housing property is in a phase of realignment. Input prices are increasing, interest is increasing, and credit is tightening, forcing buyers to reconsider high-priced purchases. Although schemes offering subsidized housing are bringing some relief, they cannot keep up with price pressures in key metros.

"Developers need to highlight flexible payment schemes and fresh offerings, but in the short run, commercial property—offices, malls, and institutional-grade properties—is appearing to be a safer, more predictable bet for investors," Annuj Goel, Chairman, Goel Ganga Developments (Annuj Goel Group) said.

What's driving the dip?

The reported 20% decline in housing sales across major cities this quarter signals a moderation in sentiment rather than a structural slowdown in the residential sector. As per Sahil Verma, COO of Shray Projects, here are the reasons for the dip.

Affordability pressures: Although the loan rates appear to stabilise, the property prices in most of the metros have soared in the last few quarters, which is straining affordability.
Wait-and-watch attitude: Buyers are considering future releases and superior payment offers prior to being devoted.
Mismatch in supply: Developers have been placing much emphasis on the mid to premium segment, leaving the low-end segment underserved.

This stage might, however, be regarded as a healthy correction. Developers are being cautious when launching new developments, which means that it balances demand and supply.

As the inflation rates reduce and interest rates are likely to ease in 2025, confidence among the end-users will be restored slowly. The inherent need to own a home, particularly among the urban Indians, does not go away but is merely deferred and not killed.

Mid- and High-End Segments Struggle

The slowdown is more pronounced in mid- and luxury housing segments, with developers witnessing higher inventory cycles, higher carrying costs, and lower conversions. Even with good financing schemes, customers are remaining cautious due to higher EMIs and overall pricing concerns. Developers are now looking at price strategies, offering payment terms of longer tenures, and introducing smaller unit formats to lure risk-averse consumers.

Meanwhile, commercial property is also becoming more popular as a somewhat stable alternative. Office space, co-working, and structured retail properties are also finding new life, with much of it driven by corporate leasing and institutional investment.

"While residential real estate is vital to long-term growth, commercial real estate has better risk-adjusted returns in today's market. Post-pandemic office and organized retail space demand, backed by corporate recovery and retail footfalls, are driving commercial growth. Investors are becoming increasingly interested in stable yields offered by commercial properties as opposed to the cautious buyer sentiment in residential markets. Commercial properties provide stability both for investors and developers as residential demand gradually revives," says Keshav Mangla, GM Business Development at Forteasia Realty.

Institutional Funding Supports Commercial Growth

Institutional capital and private equity continue to flow in for commercial properties, which gives developers liquidity and confidence to expand. REITs and organized retail spaces have become a point of interest for local and foreign investors due to anticipated rental yields and less market volatility.

In contrast, residential markets are price and finance sensitive. Buyers are choosier about what they buy, wanting affordability, location, and quality of construction. That has muted absorption in most metro cities and led developers to diversify their portfolios into commercial, mixed-use, or integrated townships to cut risk.

"Commercial real estate is no longer about office space—it's becoming a diversified asset class. Investors are turning to mixed-use townships, logistics parks, and rental housing as part of commercial developments. The emphasis is on balancing risk against long-term demand fundamentals to seek stable returns. Commercial properties are proving to be resilient in the current environment and hence present an appealing alternative to investors seeking lower volatility than residential markets, which are currently experiencing sluggish sales and affordability concerns," says Shashank Gupta, Dirеctor, RPS Group.

Developers Meeting the Change

Developers face challenges and opportunities here. Reduced residential absorption is compelling them to reassess project timing, reprice assets, and providing more generous terms of payment. Conversely, the expanding commercial segment led by corporate leasing, structured retail, and logistics facilities is bringing the prospect of diversification and hedging risk on residential market volatility.

Hybrid townships that combine living, working, and lifestyle space are gaining popularity. They suit the investor seeking safe returns but also address increasing demand for convenience, accessibility, and community living.

Is commercial real estate the new safe answer?

Commercial real estate, be it office, retail or warehousing, can have an attractive and better-predictable yield, particularly when it is leased to good tenants in prime micro-markets. It is not a panacea for all.

"There are complexities that come with the segment too: more ticket sizes, more length of investment, lease management, and more knowledge of legal and structural due diligence," said Sahil Verma.

These factors make commercial deals more complex and therefore not suitable for every investor. While institutional and seasoned investors with cash flow backing may find value here, it's not necessarily the ideal shift for retail investors seeking liquidity or simpler ownership.

To summarize, the residential real estate is experiencing a pause and not a pullback. The commercial assets might work well on certain pockets, yet both the asset classes will remain appealing to investors-- each with their motivation, risk tolerance and time frame.

Looking Ahead

As India's urban landscape is redefined, the dynamics between residential and commercial property will shape the next wave of growth. As homebuyers hold firm, institutional buyers are stepping into their place, so that in the short term, commercial property is the riskier bet.

The 20% drop in home sales highlights the affordability structural problems of increasing prices and tightened credit, but strategic planning, emerging development models, and focusing on mixed-use commercial property can help developers and investors weather the slowdown while positioning for profitable long-run expansion.

The trend towards commercial and mixed-use developments may ultimately become a more sustainable urban cityscape, where residential and commercial properties feed off each other to ensure stability for developers as well as investors in a growingly uncertain market.

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