Construction costs surge 40% in five years, affordable housing takes the hardest hit
Mumbai continues to top the list with construction costs for luxury housing exceeding ₹5,000 per sq. ft, while cities like Kolkata remain relatively affordable, where budget housing starts as low as ₹1,500 per sq. ft.
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India’s real estate sector is grappling with relentless cost escalations, with the average construction cost of residential projects soaring nearly 40% between 2019 and 2024. The sharpest surge came post-2021, driven by inflation, global supply chain disruptions, policy changes, and rising infrastructure demand.
According to industry data, the cost of constructing Grade A projects in tier-1 cities jumped from around ₹2,200 per sq. ft in October 2021 to approximately ₹2,800 per sq. ft by October 2024—a rise of 27.3% in just three years.
What’s Driving the Spike?
Raw material costs have played a major role in pushing construction budgets upward. While cement prices fell by about 15% in the last year, both cement and steel became 30–57% more expensive over the last five years. Copper prices, in particular, saw an unprecedented rise—up by 19% in just one year and a staggering 91% over the 2019–2024 period.
Labour costs have been the single largest driver of the increase. Wages rose by 25% in the past year alone and have surged 150% since 2019, putting immense pressure on developers.
Other factors such as rising approval charges, higher compliance costs, and expensive logistics—driven largely by fuel price hikes—have further inflated overall budgets.
City-specific variations add another layer of complexity. Mumbai continues to top the list with construction costs for luxury housing exceeding ₹5,000 per sq. ft, while cities like Kolkata remain relatively affordable, where budget housing starts as low as ₹1,500 per sq. ft.
Impact on Buyers and Developers
The escalation in input costs is increasingly being passed on to homebuyers. Housing prices have climbed between 9% and 12% annually in recent years, with construction costs acting as a major driver alongside rising land prices. Affordable housing buyers are the most affected, as even a small hike of ₹500–₹800 per sq. ft can add up to ₹5–8 lakh, making home ownership much harder for price-sensitive households.
Affordable housing projects have suffered a steep decline. Their share of total launches dropped from 40% in 2019 to just 12% in the first half of 2025, while their share of overall sales fell from 38% to 18% during the same period, according to ANAROCK Research. Mid-range buyers are also feeling the strain, while luxury buyers remain relatively insulated since higher costs often add to the premium positioning of such projects.
Developers’ margins are under stress as well. Smaller firms in the affordable housing segment, which already work with thin margins, are unable to absorb these cost increases. Many have slowed down new project launches or scaled back on amenities. Larger developers, particularly in the luxury segment, are better equipped to withstand the hikes because of their higher margins and stronger brand positioning.
Tariffs and Policy Uncertainty
The possibility of tariffs on construction materials threatens to worsen the situation. A 25% tariff could push project costs up by 1.5–2.5% above existing inflationary trends, while a 50% tariff could increase costs by 5% or more, especially for import-heavy projects such as luxury or commercial developments. Analysts caution that such a move would not only hurt affordability but also delay project pipelines and dampen demand in the affordable housing market.
There may be some relief in sight with the proposed restructuring of GST. The government has signalled that GST rates may be streamlined to 5% and 18%, and the tax on cement could be reduced from 28% to 18%. Such a move would directly lower input costs for developers.
If implemented, these reforms could reduce home prices by up to 4% in the affordable segment, where lower input costs and restored input tax credits would have the most impact. In the mid-range housing segment, prices could fall by 2–3%. However, the luxury housing market is unlikely to benefit significantly, as imported finishes and luxury materials are still subject to the highest 40% GST rate.
With construction costs showing no signs of easing, affordability pressures are expected to intensify further. Developers may turn increasingly to local sourcing, government incentives, and regulatory support to stabilize costs. Without such measures, analysts warn, India’s affordable housing ambitions could be derailed, leaving millions of aspiring homeowners priced out of the market.
