Housing prices across India’s top seven cities rose 59% between 2021 and 2025, significantly outpacing the 34% increase in construction costs over the same period, according to Anarock Research & Advisory.
The sharp divergence highlights the growing role of land prices, developer margins and demand-supply dynamics in driving housing prices, beyond the underlying cost of construction.
The average construction cost of a standard-plus residential project across the top seven cities increased from Rs 2,681 per sq ft in 2021 to Rs 3,604 per sq ft in 2025, a 34% rise or a compound annual growth rate (CAGR) of 6.9%.
In comparison, average residential capital values, or selling prices, jumped from Rs 5,826 per sq ft to Rs 9,260 per sq ft during the same
period, a 59% increase, translating into a CAGR of around 12%.
Premium-segment construction costs rose 39%, from Rs 3,861 per sq ft in 2021 to Rs 5,370 per sq ft in 2025.
According to Anarock, around 66% of the increase in residential prices can be attributed to higher construction costs, while the remaining 34% reflects factors including rising land prices, developer margins and changing demand-supply dynamics.
Land prices emerge as a key driver
Land, unlike cement, steel and labour, is not included in construction-cost estimates. Anarock data shows that land values across the top seven cities, barring some outliers, increased by 50% to 120% between 2021 and the first half of 2026.
The National Capital Region (NCR) recorded land price increases of around 70-130%, while Bengaluru saw increases of 60-120%.
“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,” said Santhosh Kumar, vice-chairman, Anarock Group.
He added that higher land acquisition costs are making project feasibility and home pricing more challenging, particularly in established corridors where infrastructure improvements can push up land values even before a project is launched.
US-Iran tensions add to construction costs
Anarock said construction costs have come under further pressure from the ongoing Middle East tensions, with steel, fuel-linked logistics, imported finishing materials and MEP (mechanical, electrical and plumbing) costs seeing sharp increases.
“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,” Kumar said.
Steel and fuel-linked logistics have emerged as the sharpest movers. TMT steel prices are around 20% higher, with prices reaching approximately Rs 72,000 per tonne. Fuel and site logistics costs, despite accounting for only around 4-5% of project costs, have risen 15-20%.
Finishing materials such as tiles, glass and hardware have become 8-12% more expensive, while MEP costs have risen 9-13% amid higher copper and aluminium prices.
Labour, the largest individual component of construction costs at around 25-30%, has increased by 5-6%. Cement costs have risen relatively moderately by around 4-5%.
MEP costs rising faster than core construction
The growing sophistication of residential projects is also increasing the contribution of building services such as electrical systems, plumbing, HVAC, elevators and fire-safety infrastructure to overall construction costs.
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 rose more than 17% during the same period, 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, with MEP costs rising 19.6% between 2023 and 2025.
Developers face margin pressure
The latest increase in construction costs is likely to have a different impact depending on the stage of a project and its target segment. For projects that have already been launched and substantially sold, developers have limited ability to pass on additional costs to buyers, potentially putting pressure on margins.
New projects offer greater scope for developers to reprice homes based on prevailing land and construction costs, although the extent of price increases will depend on affordability and competitive conditions.
Premium and luxury housing is likely to be better positioned to absorb higher costs because buyers in these segments are generally less price-sensitive. In affordable and mid-income housing, however, higher prices could weigh on affordability and demand.
Developers may therefore respond through calibrated price increases, optimisation of project specifications, changes in product mix, slower launch timelines and greater focus on locations or segments with stronger pricing power.
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