Mumbai, Sep 03: Housing prices across India’s 7 cities have skyrocketed twice as fast as construction costs over the last five years, finds latest Anarock Research data. This staggering 25% divergence signals an urgent affordability crisis for buyers – and a severe margin threat for developers.
There is a clear, widening disconnect between the physical cost of building homes and the final price tag for buyers:
- Between 2021 and 2025, the average cost to construct a standard-plus residential project increased by 34%, moving from INR 2,681/sft to INR 3,604/sft.
- In the same period, average residential capital values surged by 59%, jumping from INR 5,826/sft to INR 9,260/sft.
- 66% of this price hike is linked to construction expenses – the remaining 34% is driven by external pressures – primarily escalating land costs, developer margins, and shifting market demand-supply dynamics.
Santhosh Kumar, Vice Chairman – Anarock Group, says
“Land prices in the major cities have risen sharply in the last five years. Factors like infrastructure-led appreciation, demand-supply dynamics, location premiums and developer pricing have all contributed to the increase in residential capital values.”
“The Middle East tensions have caused steel, fuel-linked logistics, imported finishing materials and MEP costs to rise sharply, adding another estimated 8-10% to overall construction costs. Developers are now challenged on passing this on to homebuyers without affecting affordability and sales momentum,” he adds.
Home Prices Outpace Construction CostsAnarock data on the top 7 cities shows a clear divergence between the cost of building homes and the prices at which they are sold. Construction costs have risen by over 34% between 2021 and 2025 – equivalent to a CAGR of approx. 6.9%, while average residential capital values increased 59% – a CAGR of approx. 12%.
|
Metric |
2021 (INR/Sft) |
2025 (INR/Sft) |
% Change |
CAGR |
|
Top 7 cities avg. construction cost |
2,681 |
3,604 |
34% |
6.9% |
|
Premium-segment construction cost |
3,861 |
5,370 |
39% |
7.8% |
|
Residential capital pricing (selling price) |
5,826 |
9,260 |
59% |
12% |
According to latest Anarock data, barring some outliers, land values in the top 7 cities rose between 50% and 120% between 2021 to H1 2026. NCR and Bengaluru saw the highest land price hikes of 70-130% and 60-120%, respectively, in this period.
“Higher land acquisition costs complicate both project feasibility and home pricing – especially in established corridors, where infrastructure improvements cause land values to rise steeply even before a project’s launch,” says Kumar.
Steel & Logistics Lead Latest Surge
Within the Middle Eastern war-induced 8-10% construction costs hike, steel and fuel-linked logistics are the sharpest movers. MEP and finishing materials have also recorded significant increases.
|
Cost component |
Share of cost |
Escalation |
What is driving it |
|
Labour |
25-30% |
+5-6% |
New labour codes & shortage of skilled workers |
|
Finishing (tiles, glass, hardware) |
18-22% |
+8-12% |
Pricier imports due to shipments reroutes around Cape of Good Hope |
|
Steel (TMT) |
15-20% |
+20% |
Prices up to approx. INR 72,000/tonne |
|
Cement |
12-18% |
+4-5% |
Petcoke supply risk, near doubling of packaging costs |
|
MEP (electrical, plumbing, HVAC) |
8-12% |
+9-13% |
Sharp spike in copper and aluminium prices |
|
Sand, aggregates & RMC |
7-10% |
+5-7% |
Diesel-led transport inflation, crude above USD 100/barrel |
|
Bricks / AAC blocks |
5-7% |
+3-5% |
Fuel and freight costs passed through to block and brick prices |
|
Fuel & site logistics |
4-5% |
+15-20% |
Direct hit from crude oil trading above USD 100/barrel |
- Steel prices – ~20% higher; TMT bar prices now approx. INR 72,000 per tonne. Fuel & site logistics (though only 4-5% of project costs) 15-20% higher.
- Finishing materials – tiles, glass & hardware now ~8-12% costlier; MEP costs up 9-13% amid higher copper & aluminium prices.
- Labour – largest single cost component (approx. 25-30% of project cost) – up by a moderate 5-6%. Cement also relatively contained with ~4-5% increase.
Mechanical, Electrical & Plumbing
- The increasing sophistication of residential projects makes building services and technical systems – electrical infrastructure, plumbing, HVAC, elevators, and fire-safety systems – an ever-increasing part of the overall cost equation.
- Higher copper and aluminium prices, equipment costs and skilled-contractor shortages have contributed to the increase. Between 2023 and 2025, core building avg. costs across the top 7 cities increased 13%, from INR 1,956/sft in 2023 to INR 2,212/sft in 2025. MEP costs rose significantly faster by more than 17% – from INR 672/sft to INR 788/sft in this period.
- MEP accounted for almost 22% of total construction cost in 2025.
- Mumbai recorded the sharpest increase, with MEP costs rising 19.6% between 2023 and 2025.
Impact on Developers
An 8-10% increase in construction costs materially impacts project-level profitability, depending on project stage.
- For already launched and sold projects, ability to pass higher costs on to buyers is limited. The immediate impact is therefore compressed margins.
- For new projects, developers have more flexibility to re-price basis prevailing construction and land costs if the target clientele’s affordability and local market’s competitive environment permit.
- Premium and luxury housing can absorb higher costs due to less price sensitive buyers.
- In affordable and mid-income housing, price hikes can affect affordability and demand. Developers will resort to more calibrated price increases, optimised project specs, changes in product mix, slower launch timelines, and locations and/or segments with stronger pricing power.