Home Prices Rise 59% as Construction Costs Climb 34% in India’s Top Seven Cities
Mumbai, Maharashtra | September 4, 2026: Homebuyers in India’s leading property markets are facing a widening affordability gap as residential prices have increased 59% while construction costs rose 34% over the last five years, according to a new report by ANAROCK.
The report covering India’s top seven cities shows average construction costs for a standard-plus residential project rising from ₹2,681 per sq ft in 2021 to ₹3,604 per sq ft in 2025. During the same period, average residential capital values jumped from ₹5,826 to ₹9,260 per sq ft.
The sharp difference between construction costs and selling prices points to a market increasingly influenced by land values, infrastructure-led appreciation and demand-supply conditions, beyond the cost of physically building a home.
Housing Prices Have Grown Almost Twice as Fast as Construction Costs
ANAROCK’s data shows construction costs increased at a compound annual growth rate of around 6.9%, while residential capital values grew at approximately 12% annually between 2021 and 2025.
This creates a significant gap between the cost of constructing a property and the price at which it reaches the buyer.
According to the report, around 66% of the increase in residential capital values is linked to construction expenses, while the remaining 34% is associated with factors such as land prices, developer margins and changing market dynamics.
Land Prices Are Adding Significant Pressure on Home Prices
One of the biggest reasons for the divergence is that land is not included in the reported construction-cost figure.
ANAROCK said land values across the top seven cities increased by roughly 50% to 120% between 2021 and the first half of 2026, with particularly strong increases in NCR and Bengaluru.
Land prices in NCR rose by around 70% to 130%, while Bengaluru recorded increases of approximately 60% to 120%.
Infrastructure development is also contributing to land appreciation, particularly in established and emerging growth corridors where improved connectivity can push land values higher even before new projects are launched.
Middle East Tensions Add 8–10% to Construction Costs
The report also highlighted the impact of Middle East tensions on construction expenses.
ANAROCK estimates that disruptions and cost pressures linked to the conflict have added around 8–10% to overall construction costs, particularly through higher steel prices, fuel-linked logistics, imported finishing materials and MEP expenses.
Finishing materials such as tiles, glass and hardware have become around 8–12% more expensive, while MEP costs have increased approximately 9–13%, partly due to higher copper and aluminium prices.
Steel and fuel-linked logistics have been among the sharpest-moving cost components.
Labour and Cement Costs Remain Relatively Contained
Not every construction component has experienced the same level of increase.
Labour, which accounts for approximately 25–30% of project costs, has increased by around 5–6%, according to the report.
Cement costs have risen by a comparatively moderate 4–5%.
However, the combined increase across multiple construction inputs can still materially affect project economics, particularly for projects where prices were fixed or homes were sold before costs increased.
Developers Face a Tougher Margin and Pricing Challenge
The increase in construction costs creates different pressures depending on the stage of a project.
For projects that have already been launched and largely sold, developers have limited ability to pass additional costs on to buyers. Higher expenses can therefore reduce project margins.
For new projects, developers have greater flexibility to adjust pricing according to prevailing land and construction costs. However, aggressive price increases may not be possible in affordable and mid-income segments where buyers are more sensitive to affordability.
Developers may therefore look at project specifications, product mix, launch timelines and locations to manage rising costs.
Affordable Housing Faces the Biggest Affordability Pressure
The growing gap between property prices and construction costs could have its strongest impact on affordable and mid-income homebuyers.
Premium and luxury housing can generally absorb higher prices because buyers in these segments are comparatively less price-sensitive. Affordable housing, however, operates within tighter budgets, making even moderate increases significant.
Higher land prices and construction expenses can also make it more difficult for developers to launch projects at price points accessible to first-time buyers.
Infrastructure-Led Growth Is Changing Property Values
The report highlights how infrastructure improvements are increasingly influencing land and residential values.
New roads, metro networks, airports and other connectivity projects can make previously peripheral areas more attractive to developers and buyers. This can push land prices higher and eventually affect the cost of new housing.
For property buyers, this means that a higher property price is not necessarily a reflection of construction costs alone. Location, land value, connectivity and future development potential are becoming equally important components of the final price.
What the Cost Gap Means for Homebuyers
For homebuyers, the latest data suggests that waiting for construction costs to fall may not necessarily translate into lower property prices, particularly in markets where land values and demand remain strong.
Buyers should compare properties not only on the quoted price but also on location, carpet area, construction quality, connectivity, developer track record and upcoming infrastructure.
For developers, the challenge will be to balance higher input and land costs with buyer affordability while protecting project viability.
India’s top property markets are therefore entering a phase where land appreciation, construction inflation and strong housing demand are collectively shaping the price of new homes.