Housing prices across India’s top 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% (a 6.9% CAGR), moving from INR 2,681/sft to INR 3,604/sft.
• In the same period, average residential capital values surged by 59% (a 12% CAGR), 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 Costs

Anarock 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%.

Unlike cement, steel and labour, land is not captured in the construction-cost numbers.

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.

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 (MEP)

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.