Construction costs rise 34%, housing prices 59% in 5 years: Anarock

Average residential values climbed to ₹9,260 per sq ft between 2021 and 2025, while construction costs rose to ₹3,604 per sq ft, widening affordability pressures

Housing prices across India’s top seven cities rose 59 per cent between 2021 and 2025, significantly outpacing the 34 per cent increase in residential construction costs, as rising land values, location premiums and market dynamics widened the gap between the cost of building homes and their selling prices, according to property consultancy firm Anarock.

 

This 25-percentage-point divergence signals an urgent affordability crisis for buyers and a severe margin threat for developers, Anarock noted.

 

Between 2021 and 2025, the average cost of constructing a standard-plus residential project increased at a compound annual growth rate (CAGR) of 6.9 per cent, rising from Rs 2,681 per square foot to Rs 3,604 per square foot.

  

During the same period, average residential capital values grew at a CAGR of 12 per cent, jumping from Rs 5,826 per square foot to Rs 9,260 per square foot.

 

Anarock said 66 per cent of this price increase was linked to construction expenses, while the remaining 34 per cent was driven by external pressures — primarily escalating land costs, developer margins and changing demand-supply dynamics.

 

Santhosh Kumar, vice-chairman of Anarock Group, said: “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.”

 

Kumar added that West Asia tensions had caused steel, fuel-linked logistics, imported finishing materials and mechanical, electrical and plumbing (MEP) costs to rise sharply, adding an estimated 8-10 per cent to overall construction costs.

 

“Developers are now challenged on passing this on to homebuyers without affecting affordability and sales momentum,” he said.

 

Unlike cement, steel and labour, land is not captured in construction-cost numbers. According to Anarock, barring some outliers, land values in the top seven cities rose between 50 per cent and 120 per cent between 2021 and the first half of 2026 (H1 2026).

 

The National Capital Region (NCR) and Bengaluru saw the highest land price increases of 70-130 per cent and 60-120 per cent, respectively, between 2021 and H1 2026.

 

“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,” Kumar said.

 

Within the 8-10 per cent increase in construction costs induced by the West Asia conflict, steel, up 20 per cent, and fuel-linked logistics have been the sharpest movers.

 

MEP and finishing material costs have recorded increases of 9-13 per cent and 8-12 per cent, respectively.

 

Labour costs, the largest single cost component and accounting for approximately 25-30 per cent of project costs, have risen by a relatively moderate 5-6 per cent. Cement costs have increased by 4-5 per cent amid the conflict.

 

For developers, an 8-10 per cent increase in construction costs materially affects project-level profitability, depending on the stage of the project.

 

Developers of already launched and largely sold projects have limited ability to pass on additional costs, putting pressure on margins. New projects, however, offer greater scope for repricing, subject to local affordability and competition.

 

The impact is likely to be more pronounced in affordable and mid-income housing, where buyers are more price-sensitive. Premium and luxury projects, meanwhile, have greater pricing power, allowing developers to absorb higher costs or pass on part of the increase to buyers.