India’s housing market is witnessing a widening gap between the cost of constructing homes and the prices at which they are being sold, with residential capital values across the top seven cities rising 59% between 2021 and 2025, compared with a 34% increase in average construction costs, according to Anarock Research.
The data points to a growing affordability challenge for homebuyers, while developers face increasing pressure from rising land prices and construction costs.
Between 2021 and 2025, the average construction cost for a standard-plus residential project across the top seven cities increased from Rs 2,681 per sq ft to Rs 3,604 per sq ft, representing a 34% increase and a compound annual growth rate (CAGR) of around 6.9%.
Over the same period, average residential capital values increased from Rs 5,826 per sq ft to Rs 9,260 per sq ft, a 59% rise and a CAGR of approximately 12%.
This means housing prices grew substantially faster than the underlying cost of construction.
Anarock estimates that around 66% of the increase in residential prices can be linked to construction expenses, while the remaining 34% is attributable to factors such as rising land costs, developer margins and changing demand-supply dynamics.
Land costs emerge as a major driver
Unlike cement, steel, labour and other construction inputs, land is not included in the construction-cost calculations. However, rapidly rising land values have become an increasingly important component of the overall housing price equation.
According to Anarock, land values across the top seven cities increased by roughly 50% to 120% between 2021 and H1 2026. NCR and Bengaluru recorded some of the sharpest increases, with land prices rising by approximately 70-130% and 60-120%, respectively.
The increase has been particularly pronounced in established and high-demand corridors, where infrastructure improvements can trigger land appreciation even before new residential projects are launched.
Higher land acquisition costs can directly affect project feasibility and ultimately influence the price developers need to charge for new homes.
Construction costs face another pressure wave
Developers are also facing renewed pressure on construction costs following increases in several key building-material and logistics components.
Anarock estimates that the Middle East conflict has contributed to an additional 8-10% pressure on overall construction costs, particularly through steel, fuel-linked logistics, imported finishing materials and MEP components.
Steel and logistics have emerged among the sharpest movers. TMT steel prices are estimated to be around 20% higher, reaching approximately Rs 72,000 per tonne.
Fuel and site logistics costs, although accounting for only around 4-5% of project costs, have risen by an estimated 15-20%.
Finishing materials such as tiles, glass and hardware have become around 8-12% more expensive, while mechanical, electrical and plumbing (MEP) costs have increased by around 9-13%, driven partly by higher copper and aluminium prices.
Labour remains the single largest construction cost component, accounting for approximately 25-30% of project costs. Labour costs have increased by around 5-6%, while cement prices have risen by a relatively moderate 4-5%.
MEP costs rising faster than core construction
The increasing sophistication of residential projects is also pushing up expenditure on electrical systems, plumbing, HVAC, elevators and fire-safety infrastructure.
Across the top seven cities, core building costs increased 13% between 2023 and 2025, from Rs 1,956 per sq ft to Rs 2,212 per sq ft.
MEP costs, however, increased by more than 17% during the same period, rising from Rs 672 per sq ft to Rs 788 per sq ft.
MEP accounted for nearly 22% of total construction costs in 2025.
Mumbai recorded the sharpest increase among the top seven cities, with MEP costs rising 19.6% between 2023 and 2025.
What it means for developers
The increase in construction costs creates different challenges depending on where a project is in its development cycle.
For projects that have already been launched and substantially sold, developers have limited ability to pass higher construction costs on to existing buyers. Any increase in input costs can therefore put pressure on project margins.
New projects offer greater flexibility because developers can price homes based on prevailing land and construction costs. However, the ability to increase prices will depend on local demand, competition and buyers’ affordability.
Premium and luxury housing is likely to have greater capacity to absorb cost increases because buyers in these segments are generally less price-sensitive.
The situation is more challenging for affordable and mid-income housing. Significant price increases could affect affordability and potentially slow sales.
Developers may therefore respond through calibrated price increases, changes in specifications, optimisation of project design, adjustments to product mix or slower launch schedules.
The affordability question
The divergence between construction costs and housing prices highlights a key structural issue facing India’s residential market.
Construction costs have certainly increased, but the data indicates that they are not the only reason homes have become significantly more expensive.
Land appreciation, infrastructure-led location premiums, demand-supply conditions and developer pricing are increasingly influencing residential capital values.
For homebuyers, this means that future housing prices may remain under pressure even if commodity prices such as cement and steel stabilise.
For developers, meanwhile, the combination of expensive land and rising construction costs makes project feasibility increasingly dependent on location, product positioning and pricing power.
With land values continuing to rise in established housing markets and construction costs facing fresh input-cost pressures, the affordability equation for India’s residential real estate sector is likely to remain a key concern going forward.
Also Read: Cost of construction up 10-12% likely to push up real estate prices
