Construction cost for housing projects increases by 34%

Housing prices across India's top 7 cities have increased twice as fast as construction costs over the last five years, which has lead to affordability crisis for buyers and a margin threat for developers.

According to Anarock data, between 2021 and 2025, the average cost to construct a standard-plus residential project increased by 34% (a 6.9% CAGR), moving from Rs 2,681/sft to Rs 3,604/sft. In the same period, average residential capital values surged by 59% (a 12% CAGR), jumping from Rs 5,826/sft to Rs 9,260/sft.

“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 Group.


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.

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“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.

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,” Kumar said.

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.

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.