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Construction costs in top seven Indian cities rise 34% and housing prices increase by 59% in the last five years: Report
US-Iran war impact: Middle East tensions caused an estimated 8-10% increase in overall construction costs, according to a report released by ANAROCK
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Housing prices across India's top seven cities have skyrocketed twice as fast as construction costs over the last five years, according to a report released by ANAROCK, a real estate consultancy. The report said that between 2021 and 2025, the average cost to construct a standard-plus residential project increased by 34% (a 6.9% CAGR), moving from ₹2,681 per sq ft to ₹3,604 per sq ft.
In the same period, average residential capital values surged by 59% (a 12% CAGR), jumping from ₹5,826 per sq ft to ₹9,260 per sq ft.
This staggering 25% divergence signals an urgent affordability crisis for homebuyers and a severe margin threat for developers, the report said.
According to the report, this indicated a clear, widening disconnect between the physical cost of building homes and the final price tag for homebuyers.
The report stated that 66% of this price hike is linked to construction expenses, and the remaining 34% is driven by external pressures, primarily escalating land costs, developer margins, and shifting market demand-supply dynamics.
“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," said Santhosh Kumar, Vice Chairman, ANAROCK.
“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 to pass this on to homebuyers without affecting affordability and sales momentum,” Kumar said.
Home prices outpace construction costs
The ANAROCK data on the top seven 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," the report said.
The report indicated that, barring some outliers, land values in the top seven cities rose between 50% and 120% between 2021 and 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,” said Kumar.
Also Read: Mumbai real estate market reports 12,503 property registrations in August 2026, up 11% YoY
Steel and Logistics lead surge
According to the report, 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.
Finishing materials like tiles, glass & hardware now ~8-12% costlier; MEP costs up 9-13% amid higher copper and 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, the report said.
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 homebuyers 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," the report said.
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, according to the report.
