In major Indian cities, purchasing a home is becoming expensive not only due to growing demand but also because of increasing land prices and developer margins. According to a new report by ANAROCK, housing prices in seven key cities in the country have grown nearly twice as fast as construction costs between 2021 and 2025. This growth has widened the gap between the actual cost of construction and the prices set for buyers.
According to ANAROCK, the average cost of preparing Standard-plus category residential projects increased by 34% during 2021–2025, corresponding to a Compound Annual Growth Rate (CAGR) of about 6.9%. Construction costs rose from ₹2,681 per square foot in 2021 to ₹3,604 per square foot by 2025.
Meanwhile, the average capital cost of housing increased by 59% over the same period, reaching ₹9,260 per square foot from ₹5,826 per square foot. This means the annual rate of increase in housing prices was about 12%.
The report indicates that approximately 66% of the overall increase in housing costs is attributed to construction expenses. The remaining 34% is due to factors such as rising land prices, developer margins, and changes in the supply and demand balance in the market. The report emphasizes that construction costs include expenses like cement, steel, and labor, but land price is not included, so the rise in land value directly affects the final house price.
Santosh Kumar, Vice President of ANAROCK, noted the significant rise in land prices in major cities over the past five years. He explained that infrastructure development, the balance of supply and demand, premium location, and developers' pricing strategy played a key role in increasing the cost of residential real estate.
According to the report, from 2021 to the first half of 2026, land prices in most of the country's seven major cities have risen by 50–120%, with some areas exceeding these limits. In the NCR region, land prices rose by 70–130%, while in Bangalore, it was 60–120%. The significant rise in land prices in these two markets has had a substantial impact on the final cost of residential property.
Furthermore, ANAROCK notes that due to tensions in the Middle East, costs for steel, fuel for logistics, imported finishing materials, and MEP (mechanical, electrical, and plumbing) related expenses have significantly increased. These factors could add an additional pressure of 8–10% to total construction costs. This presents a dilemma for developers: how much of the increased costs to pass on to buyers and how much to absorb to avoid negatively affecting sales and demand.
Statistics show a continuous widening gap between construction costs and housing prices over the last five years. While construction costs increased by 34%, housing prices jumped by 59%. This shows that the price of a house is determined not only by the costs of bricks, cement, steel, and labor. Land, location, infrastructure, market demand, and developer pricing strategy now play a decisive role, which may make buying a home in major cities even more complicated in the future.