Affordable Housing Crisis: Construction Costs Surge in Mumbai, Delhi, and Bangalore
India's real estate sector is facing a significant challenge as construction costs rise sharply, making affordable housing increasingly out of reach for many homebuyers.
Real EstateConstruction CostsAffordable HousingMumbaiDelhiReal Estate MumbaiAug 19, 2025
In October 2021, the average cost for Grade A residential projects in tier-1 cities stood at Rs 2,200 per sq. ft. By October 2024, this had jumped to Rs 2,800 per sq. ft. The burden is heavier in metros like Mumbai, Delhi NCR, and Bangalore, where construction costs for luxury projects exceed Rs 5,000 per sq. ft., compared to Rs 1,500–Rs 2,000 per sq. ft. for affordable housing and Rs 2,000–Rs 2,800 per sq. ft. for mid-range homes.
Rising Input Costs: Labour the Biggest Culprit
Raw Materials
Cement prices fell 15% in the past year but remain 30–57% higher than in 2019. Steel prices dropped just 1% year-on-year, but copper and aluminium saw bigger hikes: copper rose 19% in one year and 91% in five years.
Labour Costs
Labour remains the steepest cost driver, rising 25% in just one year and a staggering 150% since 2019.
Overheads
Additional costs, ranging from approvals and compliance to fuel-driven logistics, have further pushed budgets higher, making real estate construction in India more expensive than ever.
City-Wise Cost Variations in 2025
Mumbai: Affordable Rs 2,500–4,500 | Mid-range Rs 3,500–5,000 | Luxury Rs 5,000+
Delhi NCR: Affordable Rs 2,000–3,500 | Mid-range Rs 3,000–4,500 | Luxury Rs 4,500+
Bangalore: Affordable Rs 1,800–3,200 | Mid-range Rs 2,800–4,000 | Luxury Rs 4,500+
Hyderabad, Chennai, Kolkata, and Pune remain slightly cheaper, but costs are rising steadily across these markets as well.
Affordable Housing: From 40% Share to Just 12%
The sharp rise in costs has disproportionately hit the affordable housing segment, which is already extremely price-sensitive. According to ANAROCK Research, the share of affordable housing in total new launches has plunged from 40% in 2019 to just 12% in H1 2025. Sales share also dipped from 38% in 2019 to 18% in H1 2025. Even a modest increase of Rs 500–800 per sq. ft. translates to an additional Rs 5–6 lakh burden for buyers, a significant barrier for lower-income households.
Developers’ Dilemma: Margins Under Pressure
Smaller developers in the affordable segment are struggling the most. Thin profit margins prevent them from absorbing input cost shocks, leading to:
Delayed launches or stalled projects
Cutting corners on materials and amenities
Passing costs to buyers through escalation clauses in builder-buyer agreements
In contrast, larger players in the luxury housing space can cushion the blow thanks to wider margins and brand strength.
Tariff Risks Loom Large
The spectre of new import tariffs could worsen the crisis. Key inputs like steel, aluminium, cement, and imported finishes are heavily exposed.
25% tariff - Construction costs may rise 1.5–2.5%
50% tariff - Costs could surge 5% or more, particularly for luxury and commercial projects
Such tariffs could delay project pipelines, especially those dependent on imported fixtures. Developers may increasingly pivot towards local sourcing, but supply chain restructuring will take time.
Policy Relief: GST Reforms Could Ease Burden
The government’s proposed GST rationalisation, particularly cutting cement GST from 28% to 18%, is seen as a potential game-changer.
Affordable housing prices could fall by 2–4%
Mid-range housing could see a 2–3% price reduction
Luxury housing, however, may benefit less since many imported finishes could still attract higher taxes.
Industry experts say restoring input tax credit (ITC) will further ease developer margins and help bring down buyer costs.
The Road Ahead
With residential prices already climbing 9–12% annually due to land scarcity and input inflation, affordability is at risk of slipping further out of reach for millions of homebuyers. The combination of high construction costs, thin developer margins, and tariff uncertainty has left the affordable housing sector most vulnerable. Without strong policy support and cost stabilisation measures, the vision of “Housing for All” could face major setbacks in the coming years.
Frequently Asked Questions
What is the main reason for the rise in construction costs in India?
The main reason for the rise in construction costs in India is the significant increase in labour costs, which have risen by 25% in one year and 150% since 2019. Additionally, raw material prices and overhead costs have also increased.
How have construction costs affected affordable housing?
Construction costs have disproportionately affected the affordable housing segment. The share of affordable housing in new launches has dropped from 40% in 2019 to just 12% in H1 2025, making it increasingly out of reach for lower-income households.
What are the potential impacts of new import tariffs on construction costs?
New import tariffs could further increase construction costs. A 25% tariff could raise costs by 1.5–2.5%, while a 50% tariff could cause a 5% or more surge, particularly affecting luxury and commercial projects.
How could GST reforms help the real estate sector?
GST reforms, such as cutting the cement GST from 28% to 18%, could reduce affordable housing prices by 2–4% and mid-range housing prices by 2–3%. Restoring input tax credit (ITC) would further ease developer margins and help bring down buyer costs.
What is the future outlook for affordable housing in India?
The future outlook for affordable housing in India is uncertain. High construction costs, thin developer margins, and potential tariff increases have left the affordable housing sector vulnerable. Strong policy support and cost stabilisation measures are needed to ensure the vision of 'Housing for All' is achieved.
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