Construction Costs Up 34% Since 2021, But Housing Prices Rise 59% Across Top 7 Cities

Mumbai: Construction costs for standard-plus residential projects across India’s top seven cities increased by more than 34% between 2021 and 2025, while average residential capital values surged 59% during the same period, according to the latest data from Anarock Research.

The divergence highlights the growing impact of land values and other external factors on housing prices, even as developers face continued pressure from rising construction costs.

According to Anarock Research, the average cost of constructing a standard-plus residential project increased from INR 2,681 per sq ft in 2021 to INR 3,604 per sq ft in 2025, representing a rise of 34% and a compound annual growth rate (CAGR) of 6.9%.

In comparison, average residential capital values climbed from INR 5,826 per sq ft to INR 9,260 per sq ft over the same period, registering a 59% increase and a CAGR of approximately 12%.

The data indicates that while 66% of the increase in residential prices is linked to construction expenses, the remaining 34% is driven by external pressures, primarily rising land costs, developer margins and changing 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.”

He added, “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.”

Also Read: CEO Roundtable on Ease of Doing Business: $200 Billion Potential in India’s Data Centre Sector

Housing Prices Outpace Construction Costs

The latest Anarock data shows a widening gap between the physical cost of constructing residential projects and the final prices at which homes are sold.

While construction costs increased by over 34% between 2021 and 2025, average residential capital values rose by 59%.

Unlike expenses related to cement, steel and labour, land values are not included in construction-cost calculations. Rising land acquisition expenses have therefore emerged as a significant component of the broader housing price equation.

According to Anarock, barring some outliers, land values across the top seven cities increased between 50% and 120% from 2021 to H1 2026.

The National Capital Region (NCR) and Bengaluru recorded some of the highest increases, with land prices rising by 70-130% and 60-120%, respectively, during 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.

The increase in land values has been particularly significant in established and high-demand corridors, where infrastructure-led appreciation can push up land prices even before residential projects are launched.

Middle East Tensions Add 8-10% Pressure on Construction Costs

The latest increase in construction costs has also been influenced by higher prices for steel, fuel-linked logistics, imported finishing materials and mechanical, electrical and plumbing (MEP) components.

Anarock estimates that the Middle East tensions have contributed to an additional 8-10% increase in overall construction costs, with steel and fuel-linked logistics emerging as the sharpest movers. MEP and finishing materials have also recorded significant increases.

Across India’s top seven cities, Anarock data shows that construction costs rose by more than 34% between 2021 and 2025, equivalent to a CAGR of approximately 6.9%.

Over the same period, average residential capital values increased 59%, representing a CAGR of approximately 12%.

• Steel and Logistics

Steel prices have increased by approximately 20%, with TMT bar prices now at around INR 72,000 per tonne.

Fuel and site logistics costs, despite accounting for only around 4-5% of overall project costs, have increased by 15-20%.

• Finishing Materials

The cost of finishing materials, including tiles, glass and hardware, has increased by approximately 8-12%. MEP costs have risen by 9-13%, driven by higher copper and aluminium prices.

• Labour

Labour remains the largest single cost component of residential construction, accounting for approximately 25-30% of project costs. However, labour costs have increased at a more moderate rate of 5-6%.

Cement costs have remained relatively contained, increasing by approximately 4-5%.

MEP Costs Rise Faster Than Core Building Costs

The increasing sophistication of residential projects has made building services and technical systems a growing component of overall construction costs.

Electrical infrastructure, plumbing, heating, ventilation and air conditioning (HVAC), elevators and fire-safety systems have become increasingly important parts of the residential construction cost equation.

Higher copper and aluminium prices, equipment costs and shortages of skilled contractors have contributed to the increase in MEP expenses.

Between 2023 and 2025, average core building costs across the top seven cities increased by 13%, rising from INR 1,956 per sq ft in 2023 to INR 2,212 per sq ft in 2025.

During the same period, MEP costs increased by more than 17%, from INR 672 per sq ft to INR 788 per sq ft.

MEP expenses accounted for almost 22% of total construction costs in 2025, highlighting their increasing contribution to residential project expenditure.

Mumbai recorded the sharpest increase, with MEP costs rising by 19.6% between 2023 and 2025.

Impact of Rising Construction Costs on Developers

An 8-10% increase in construction costs can materially affect project-level profitability, with the impact depending on the stage of the project.

For projects that have already been launched and sold, developers have limited ability to pass higher costs on to homebuyers. The immediate effect is therefore compressed margins.

For new projects, developers have greater flexibility to re-price homes based on prevailing construction and land costs, provided the target clientele’s affordability and the competitive conditions of the local market allow such increases.

Premium and luxury housing segments can absorb higher construction costs more easily because buyers in these categories are less price-sensitive.

However, in the affordable and mid-income housing segments, price increases can have a more direct impact on affordability and demand.

Developers may therefore resort to more calibrated price increases, optimised project specifications, changes in product mix, slower launch timelines, and greater focus on locations or segments with stronger pricing power.

Overall, the latest Anarock data shows that residential housing prices across the top seven cities have increased substantially faster than construction costs in recent years, with rising land values emerging as a major contributor to the final price of homes.