India's Real Estate Construction Costs Rise by 11% as Developers Reevaluate Budgets

The average cost of construction in Indian real estate has risen by around 11% in the last one year, with the labor cost showing itself to be a major driving factor, and prices for sand, bricks, glass, and wood also rose moderately, according to a report put out Thursday.

Generally speaking, it is rather unimportant for four construction materials. In the case of cement, prices plummeted by a full 15%. Steel prices have fallen by just 1% from last year, reports Colliers.

"As labor costs forms a third of the total construction cost, the 25% compounded annual increase has stretched budgets and has also affected cost of operations," said Badal Yagnik, CEO, Colliers India.

He further added that the accelerated cost of labor has been further increased by the rising shortage of skilled labor and additional cost of training, safety, and compliance.

The construction cost for the residential sector has increased year-on-year by an astonishing 11%. This was partly because attention began to be paid towards quality construction and the increasing demand for amenity-laden gated communities, encouraging developers to raise the standard of their residential offerings, thereby inflating construction costs.

Commercial, industrial, and warehousing segments have seen an unprecedented tide of new supply across all sectors despite the spiking of costs across various sectors in the real estate sector in 2024, according to Vimal Nadar, Senior Director and Head of Research at Colliers India.

For instance, during the first nine months of 2024, new completions in the Indian office market were recorded at 37 million square feet, while, in comparison, industrial and warehousing sectors added almost 22 million square feet of new space.

However, to balance the construction cost that has inflated over the last few years and the issues brought about by it, the developers continue to optimize their spending by reviewing their budgets. The supply chain is also better managed by suppliers through diversification and localized sourcing for key construction materials, said a report.