MUMBAI: To spark mortgage growth, banks are focusing on the luxury housing market, designing tailored loan products to cater to increasing demand for high-end properties in major cities and their affluent suburbs.
“The premium segment continues to thrive, and that is where the growth lies,” stated Manu Singh, head of housing finance at Kotak Mahindra Bank. “Buyers are seeking larger, luxury homes, often looking for second or third residences in Alibaug or Gurgaon. We view home loans as relationship products; our goal is to be a trusted banking partner for the affluent throughout this journey.”
In Mumbai and Delhi, luxury homes are defined as those priced above ₹2 crore, while in other metropolitan areas, the threshold is ₹1.5 crore. ICRA reports that luxury properties accounted for 34% of sales in Q1 FY26, up from 30% in FY24. A CBRE report highlighted an 85% year-on-year growth in this segment during the first half of 2025, with nearly 7,000 high-end residential units sold across the top seven cities.
“Premium apartments are still the dominant choice; 3-4 BHK units now represent 70% of the value sold,” noted Puneet Gulati, analyst at Property & Infra, HSBC India. “In terms of value, premium apartments comprised 67% of sales in Q1, an increase from 59% in FY25. They now hold a 51% share of the market by area.”
Interest rates in the luxury housing segment remain competitive, as borrowers typically have robust credit profiles. For customers with credit scores of 800 and above, SBI offers rates as low as 7.5%, while ICICI Bank and HDFC Bank follow with 7.7% and 7.9%, respectively.
Despite a slowdown in the general housing market, banks are increasingly focusing on the luxury segment. RBI data indicates that the home loan market grew 9.6% year-on-year to reach ₹30.81 lakh crore in June 2025, down from 13% growth the previous year. While some lenders have withdrawn from home loans due to low margins and fierce competition, major banks see affluent borrowers as a long-term investment opportunity.
“It’s not merely about the home loan; banks don’t profit significantly from these directly,” explained Prakash Agarwal, partner at Gefion Capital, a consulting firm. “However, this customer demographic is stable and unlikely to face cash flow issues. As home loans have terms of 10-20 years, banks have the opportunity to cross-sell wealth products, car loans, personal loans, insurance, mutual funds, and deposits.”
Crisil Ratings anticipates that premium homes will represent 38-40% of new launches in 2025 and 2026, while affordable and mid-segments are expected to shrink to 10-12% and 19-20%, respectively, down from 30% and 40% in 2020.
Increasing land and raw material costs have rendered these segments less attractive for developers, further shifting the market towards luxury.
