As Construction Costs Rise, Developer Procurement Faces a Value-Engineering Test

ANAROCK data shows residential construction costs in India have risen 34% since 2021, with finishing materials and MEP among the categories seeing fresh escalation. For building product suppliers, pressure on developer margins could change the conversation from
product price to specification value.

India’s residential developers are confronting a new round of cost pressure, and the implications could travel quickly down the building products supply chain. Average construction costs for a standard-plus residential project rose 34% between 2021 and 2025, according to ANAROCK Research & Advisory. More recent geopolitical disruptions have added another estimated 8–10% to construction costs, putting greater pressure on project margins.

For manufacturers and suppliers of building products, the important question is no longer simply how much construction costs have increased. It is how developers will respond when they cannot pass the entire increase on to homebuyers.

That could make value engineering, specification optimisation, localisation and cost predictability increasingly important considerations in developer procurement.

Construction Costs in India Have Risen, but Home Prices Even Faster

ANAROCK estimates that the average cost of constructing a standard-plus residential project across India’s top seven cities increased from ₹2,681 per sq ft in 2021 to ₹3,604 per sq ft in 2025 — an increase of more than 34%, or a CAGR of about 6.9%.

Premium-segment construction costs increased even faster, from ₹3,861 to ₹5,370 per sq ft, a rise of 39%.

Over the same period, average residential selling prices increased 59%, from ₹5,826 to ₹9,260 per sq ft.

The difference cannot be explained by construction inputs alone. Land, which is not included in ANAROCK’s construction-cost calculations, has become a significant part of the equation. Land values across the top seven cities increased by around 50–120% between 2021 and H1 2026, barring some outliers. NCR and Bengaluru recorded particularly sharp increases.

“Land prices in the major cities have risen sharply in the last five years. Factors like infrastructure-led appreciation, demand-supply dynamics, location premiums and developer pricing have all contributed to the increase in residential capital values,” says Santhosh
Kumar, Vice Chairman, ANAROCK Group.

The Pressure Is Moving into Finishes and Building Services

The latest escalation is particularly relevant to building product manufacturers because it is no longer concentrated only in basic structural materials.

ANAROCK estimates that finishing materials such as tiles, glass and hardware account for 18–22% of construction cost, and have become around 8–12% costlier. In ANAROCK’s component-level cost table, MEP — electrical, plumbing and HVAC — carries an 8–12% share, with costs rising around 9–13% amid higher copper and aluminium prices.

For developers, these are also categories where specification decisions are highly visible — either to the homebuyer or in the subsequent performance of the building. Cost reduction therefore cannot be treated in quite the same way as commodity procurement.

The numbers point to a broader challenge. Cost inflation is increasingly touching the categories that determine the performance, functionality and customer experience of the completed home, rather than remaining confined to its structural shell.

MEP Is Becoming a Bigger Part of the Building

This is particularly visible in MEP.

As residential developments become more sophisticated, electrical infrastructure, plumbing, HVAC, elevators and fire-safety systems are assuming a larger role in project costs.

ANAROCK estimates that average core building costs across the top seven cities increased 13% between 2023 and 2025, from ₹1,956 to ₹2,212 per sq ft. MEP costs grew faster — by more than 17%, from ₹672 to ₹788 per sq ft.

MEP consequently accounted for almost 22% of total construction cost in 2025. Mumbai saw the sharpest increase, with MEP costs rising 19.6% over the two-year period.

For suppliers, this makes building services an increasingly important part of the developer’s cost-management exercise.

Value Engineering Could Move Up the Procurement Agenda

How developers respond to rising construction costs in India will depend substantially on where a project sits in its lifecycle.

For projects that have already been launched and largely sold, ANAROCK points out that developers have limited ability to pass unexpected construction-cost increases to buyers. Higher costs therefore translate more directly into margin compression.

New projects provide greater room to adjust pricing, but only where customer affordability and competitive conditions permit.

ANAROCK expects developers facing these pressures to use a combination of calibrated price increases, optimised project specifications, changes in product mix, slower launch timelines and greater focus on locations or segments with stronger pricing power.

It is the reference to specification optimisation that should matter particularly to the building products industry.

Value engineering does not necessarily mean replacing every specified product with a cheaper alternative. Developers must decide where a specification can be rationalised without affecting the property’s positioning, performance or buyer perception — and where reducing specifications could ultimately prove counterproductive.

That potentially changes the supplier conversation as well.

A manufacturer capable of demonstrating lower installed cost, faster installation, reduced wastage, domestic availability, dependable delivery or lower lifecycle maintenance can offer developers something more valuable than a lower unit price.

The move towards greater supply-chain control is already visible among building product companies, with Fenesta’s recent investment in in-house aluminium extrusion illustrating how localisation and vertical integration can strengthen quality and supply predictability.

Mid-Income Housing May Face the Toughest Choices

The degree of specification pressure is also unlikely to be uniform across housing segments.

ANAROCK believes premium and luxury housing can absorb higher construction costs relatively better because buyers are less price-sensitive. Affordable and mid-income housing has much less room for manoeuvre: significant price increases can directly affect affordability and sales velocity.

That suggests the industry’s most intense value-engineering exercise could take place in the middle of the market.

For building product companies targeting this segment, the opportunity may increasingly lie in developing specifications that enable developers to take cost out of the project without visibly taking value out of the home.

Procurement Will Have to Look Beyond Purchase Price

The current escalation in construction costs in India may eventually moderate. But the larger pressures highlighted by ANAROCK — rising land values, more sophisticated building services, labour constraints and increasing material and logistics costs — suggest that cost management will remain a structural concern for residential developers.

That makes the next phase of developer procurement particularly significant for building product manufacturers.

When margins are comfortable, procurement can accommodate incremental improvements relatively easily. When margins tighten, every specification has to justify itself.

For suppliers, therefore, the emerging question is not merely whether their products can meet a developer’s specification. It is whether they can demonstrate why that specification deserves to survive the developer’s next value-engineering exercise.

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