A recent survey by Anarock Group reveals that land prices are significantly driving the surge in residential capital values across India’s top seven cities, with average residential capital values increasing by 59% from ₹5,826 to ₹9,260 per square foot between 2021 and 2025. This growth is nearly double the 34% rise in construction costs during the same period, which saw the average cost of building a standard residential project rise from ₹2,681 to ₹3,604 per square foot, according to Gulf Today.
The disparity between the rise in home prices and construction costs highlights that only about two-thirds of the increase in residential prices can be attributed to construction expenses. The remaining growth is largely due to escalating land prices, developer margins, and changing demand dynamics. Santhosh Kumar, Vice-Chairman of Anarock Group, noted that factors such as infrastructure development and location premiums have significantly contributed to the increase in residential capital values.
Land values across these cities have surged by 50% to 120% from 2021 to the first half of 2026, with the National Capital Region (NCR) and Bengaluru experiencing the most substantial increases. Kumar pointed out that rising land acquisition costs complicate project feasibility and home pricing, particularly in established areas where infrastructure improvements lead to steep land value increases even before project launches.
Additionally, geopolitical tensions in the Middle East have further strained builders, contributing to an estimated 8% to 10% rise in construction costs between March and July. This increase has been particularly pronounced in steel prices, which have risen by approximately 20%, alongside significant hikes in fuel and logistics costs.
As construction costs continue to rise, the complexity of building projects is also increasing. Core construction costs in the top seven cities rose by 13% from 2023 to 2025, while mechanical, electrical, and plumbing (MEP) costs surged by over 17%. MEP now constitutes nearly 22% of total construction costs, with Mumbai seeing the highest increases.
The impact of these rising costs varies across the industry. Developers with projects already launched may struggle to pass on these costs to buyers, potentially squeezing their profit margins. In contrast, those starting new projects may have more flexibility to adjust prices, particularly in the premium and luxury housing segments, which are less sensitive to price changes.
As the market adapts, developers may need to consider calibrated price hikes, leaner specifications, and shifts in product mix to maintain sales momentum without compromising affordability for mid-income and affordable housing segments.
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