Over the past year, the average cost of construction has surged by approximately 11%, largely due to a significant increase in labor costs alongside a moderate rise in the prices of construction materials such as sand, brick, glass, and wood, as reported by Colliers India.
Interestingly, the cumulative price increase for four key construction materials—cement, steel, copper, and aluminum—has been relatively modest. In fact, average cement prices have dropped by 15%, and average steel prices have seen a slight 1% decrease over the past 12 months.
"While the price rise of key construction materials has been moderate over the past year, labor costs have significantly driven up the overall cost of construction. With labor constituting more than one-fourth of the overall construction cost, a 25% annual rise in labor expenses has stretched construction budgets and impacted operational costs. Additionally, the need for skilled labor and the associated costs for training, safety, and regulatory compliance further exacerbate rising labor costs," said Badal Yagnik, Chief Executive Officer of Colliers India.
As of October 2024, the cost of construction in the residential segment has seen an estimated 11% year-on-year increase. Among various real estate segments, the escalation in construction costs has been particularly sharp in the residential sector. The increasing demand for high-quality construction and amenity-rich gated communities has prompted residential developers to upscale their offerings, leading to higher construction costs in this segment.
"Despite rising construction costs across real estate segments, the commercial and industrial & warehousing sectors have experienced robust new supply during 2024. For example, the Indian office market saw 37 million square feet of new completions in the first nine months of 2024, while the industrial & warehousing segment saw about 22 million square feet of new supply. Amidst healthy demand, especially for Grade A developments, project completions are expected to remain largely on schedule across major cities. Real estate developers are likely to increase their adoption of technology and sustainability practices across asset classes," says Vimal Nadar, Senior Director and Head of Research at Colliers India.
To address the steady rise in overall construction costs and associated challenges, developers are optimizing costs by reassessing budgets. They are also improving supply chain management by diversifying suppliers and opting for localized sourcing of key construction materials.
Additionally, real estate developers are increasingly investing in training and automation to mitigate challenges related to the availability of skilled manpower, which can help facilitate better project scheduling. Moving forward, greater adoption of circular economy principles will not only optimize construction costs but also improve efficiency and support sustainability.
