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Construction costs up 28% since pre-pandemic levels

The prices of key construction materials jump 32% over last 3 years, affecting margins and operational schedule of real estate companies

Construction costs up 28% since pre-pandemic levels

Construction costs up 28% since pre-pandemic levels

As of November, cost of construction has increased 28 per cent higher than pre-pandemic (November 2021) levels but continues to be stable, compared to March. The costs of key construction materials have jumped 32 per cent in a span of three years, affecting margins and operational schedule of construction companies. The government's efforts such as reducing exports and cutting import duties have kept raw material costs in check over the last few months.

As of March, construction costs rose 10-12 per cent YoY, owing to a 20 per cent increase in key material costs. Key construction materials such as cement, steel, aluminium, and copper saw a significant increase, along with fuel and labour costs due to geopolitical issues and inflation. This created a challenge for developers who were facing high debt and liquidity concerns.

However, by November overall costs of key construction materials (steel, cement, aluminium and copper) declined by 8 per cent, as compared to March. Aluminium registered highest decline of 55 per cent followed by Steel at 6 per cent decline. However, cement and copper costs increased by 9 per cent and 3 per cent respectively along with labour costs. This, coupled with decreased fuel costs, kept overall construction costs stable since March.

Talking to Bizz Buzz, Ramesh Nair, Chief Executive Officer, India and Managing Director, Market Development, Asia, Colliers, says, "Costs of key construction materials are likely to remain volatile for next few months due to uncertainties created by geo-political issues, persistent lockdowns in China and a probable global recession. Prices of key construction materials will hinge on multiple factors including global economic situation, inflation rates and supply constraints."

Therefore, developers are likely to push new launches till the input prices further decline, as any further surge in the cost of construction materials would impact the timely delivery of ongoing projects and disrupt their cashflows resulting in increase in housing prices, he said

Developers are planning their projects well in advance, and aiming timely project completions to cater to the surging demand. They are increasingly adopting Just-In-Case approach to store the materials well in advance to avoid supply bottlenecks and unexpected price hikes," said Jatin Shah, Chief Technical Officer, India & Managing Director, Technical Due Diligence, Colliers. "Residential prices have been on the rise, increasing 6 per cent YoY in Q3, led by a combination of increased input costs and robust demand. Looking ahead, prices may be more or less stable for some quarters as the market is now seeing increasing interest rates. At the same time, some investor-markets with continued demand may continue to see some increase in prices. In the industrial sector, rents can see an upward movement led by robust demand and high costs," said Vimal Nadar, Senior Director and Head of Research, India, Colliers.

Kumud Das
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