India’s major cities have seen continuous increases in the cost of buying homes over the past few years. But understanding this rise solely through cement, steel, labour and other construction expenses does not present the complete picture. Between 2021 and 2025, the average construction cost of standard-plus residential projects in the top seven cities rose by 34%, while residential capital values increased by 59%. In other words, home prices have risen at a significantly faster pace than the cost of building them.
This gap shows that property prices are influenced not only by building costs but also by land, location, developer margins and demand-supply factors.
Let us understand this change in detail and find out the real reasons behind such a sharp rise in home prices.
What’s Happening?
According to Anarock Research, between 2021 and 2025, the average construction cost of standard-plus residential projects in the top seven cities rose from Rs 2,681 per square foot to Rs 3,604 per square foot. This is a 34% increase, with a CAGR of approximately 6.9%. In comparison, during the same period, the average residential capital value rose from Rs 5,826 per square foot to Rs 9,260 per square foot, which is a 59% increase and approximately 12% CAGR.
According to the report, of the total increase in residential prices, approximately 66% is attributable to construction expenses, while the remaining 34% is linked to land costs, developer margins and changing demand-supply dynamics. This difference shows that the story of homes becoming more expensive is not limited to construction materials alone. In this, land prices emerge as one of the most important factors.
Rising Land Prices Have Become a Major Reason
In the top seven cities, between 2021 and H1 2026, land values rose by approximately 50-120%. In NCR, this increase was about 70-130%, and in Bengaluru, around 60-120%. According to the report, infrastructure-led appreciation, demand-supply dynamics, location premiums and developer pricing played a role in increasing residential capital values.
The arrival of expressways, metro lines, airports or better connectivity in an area can increase its attractiveness. This raises both the demand for and price of land. Especially in established urban corridors, limited land supply can force developers to pay higher prices. This cost eventually appears in the final price of the property.
This is why two homes with the same construction specifications can still have a large difference in price. The difference may not be only in the building, but also in the land and location on which that home is built.
Pressure is also Rising on Construction Costs
Apart from land, the cost of building homes has also risen rapidly. In the premium segment, between 2021 and 2025, construction costs rose by 39% from Rs 3,861 per square foot to Rs 5,370 per square foot.
Meanwhile, due to West Asia tensions, an additional 8-10% pressure is estimated on the total construction cost. Steel prices rose by approximately 20%, and the price of TMT bars reached around Rs 72,000 per tonne. Fuel and site logistics costs rose by 15-20%. Finishing materials such as tiles, glass and hardware became 8-12% more expensive, while MEP costs rose by 9-13%.
Labour is still the largest single component of project costs and accounts for approximately 25-30% of the total cost. Its cost rose by 5-6%. Cement prices increased by approximately 4-5%. Between 2023 and 2025, core building costs rose by 13% to Rs 2,212 per square foot, while MEP costs rose by more than 17% to Rs 788 per square foot. In 2025, the share of MEP in total construction costs was approximately 22%.
What Does This Mean for Investors?
Real estate prices have risen by 59%, while construction costs have risen by 34%. This gap shows that land, location and demand-supply factors play a major role in property values.
From the stock market perspective, rising property prices can support the revenue and realisations of real estate companies, but rising construction costs can put pressure on margins. Especially in already launched and sold projects, it is not easy to raise prices despite rising costs. On the other hand, in new projects, developers have more room in pricing, although buyer affordability remains an important constraint in mid-income and affordable housing.
What’s Next?
Going forward, the impact of construction costs will depend on the project stage and segment. In already launched and sold projects, limited scope to raise prices may keep margins under pressure. In new projects, the possibility of repricing will be higher, but affordability and competition may limit it.
Premium and luxury housing can absorb rising costs relatively better, while higher prices in the affordable and mid-income segments may affect demand. In such a situation, developers may focus on changes in pricing, project specifications, product mix and launch timing.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
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