Housing inflation: Home prices jump 59%, construction costs rise 34%

Housing prices across India’s top seven cities increased by 59% between 2021 and 2025, while construction costs rose by just 34%, according to Anarock Research.

The average selling price of residential property increased from ₹5,826 per sq ft in 2021 to ₹9,260 per sq ft in 2025. During the same period, the average construction cost of a standard-plus residential project rose from ₹2,681 per sq ft to ₹3,604 per sq ft.

As a result, residential prices grew at an annualised rate of approximately 12%, compared with a 6.9% annualised increase in construction costs.

“This staggering 25% divergence signals an urgent affordability crisis for buyers and a severe margin threat for developers. There is a clear, widening disconnect between the physical cost of building homes and the final price tag for buyers,” said Anarock.

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 INR 5,826/sft to INR 9,260/sft.
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.

Land values are driving the housing price gap

Construction expenses accounted for around 66% of the increase in residential prices between 2021 and 2025, according to Anarock.

Land values across the top seven cities rose by approximately 50% to 120% between 2021 and the first half of 2026. The National Capital Region recorded land price increases of around 70% to 130%, while Bengaluru saw land values rise by approximately 60% to 120%.

The sharpest appreciation has been recorded in established and high-demand corridors, where infrastructure improvements can push up land values even before a project is launched.

“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.

For buyers, this means that a growing portion of a home’s price is linked to its location, connectivity and future development potential rather than the physical cost of construction.

“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,” added Kumar.

A 1,000 sq ft home now costs ₹34 lakh more

The increase becomes clearer when applied to a typical home.

A 1,000 sq ft home priced at the average residential capital value of ₹9,260 per sq ft would cost approximately ₹92.6 lakh, before registration charges, taxes and other expenses.

At the 2021 average price of ₹5,826 per sq ft, the same home would have cost approximately ₹58.3 lakh.

That represents an increase of more than ₹34 lakh in five years—far greater than the rise in the cost of constructing the same-sized unit.

For homebuyers, higher property prices also mean a larger down payment, a higher loan requirement and increased monthly EMIs. Buyers may have to opt for smaller homes, longer loan tenures or locations farther from established employment and infrastructure hubs.

Construction costs face another inflationary shock

The pressure on developers has not eased. Anarock estimated that continuing tensions in the Middle East could add another 8% to 10% to overall construction costs.

Steel, fuel-linked logistics, imported finishing materials and mechanical, electrical and plumbing systems are among the components facing the sharpest increases.

Steel prices have risen by approximately 20%, with TMT bar prices reaching around ₹72,000 per tonne. Fuel and site logistics costs have increased by 15% to 20%, while finishing materials such as tiles, glass and hardware have become 8% to 12% more expensive.

MEP costs have risen by 9% to 13%, driven by higher copper and aluminium prices. Labour remains the largest cost component, accounting for approximately 25% to 30% of project costs, but has increased by a comparatively moderate 5% to 6%.

Cement costs have risen by around 4% to 5%.

Kumar said higher costs of steel, fuel-linked logistics, imported finishing materials and MEP components were putting additional pressure on developers.

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

Developers face a margin squeeze

The impact of rising construction costs will vary depending on the stage of a project.

For projects that have already been launched and sold, developers may have limited ability to pass on higher costs to buyers. The immediate impact is therefore likely to be a squeeze on project-level margins.

New projects offer greater pricing flexibility, but developers still need to balance higher land and construction costs against buyer affordability and competition.

Premium and luxury housing may be better positioned to absorb higher prices because buyers in these segments are generally less price-sensitive.

Affordable and mid-income housing, however, could face greater pressure as even modest price increases can affect affordability and demand.

MEP costs are rising faster than core construction costs

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

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

MEP expenses 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.

The increase reflects the growing sophistication of residential projects, including electrical infrastructure, plumbing, HVAC, elevators and fire-safety systems, along with higher equipment costs and shortages of skilled contractors.

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 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.