The construction cost of existing greenfield and interior fit-out projects has increased by 8 percent-9 percent in Q4 2021 as against the fourth quarter of 2020, said a report by JLL titled 'Q4 2021 Construction Price Report'.
While upsurge in construction cost per sq. ft for existing projects and new projects was at par (105%) in Q4 2020, new project cost went up substantially, from 105% in Q4 2020 to 113% Q4 2021 translating to an 8% hike, the report said.
This was primarily driven by procurement challenges, which led vendors to procure from the first available source at a higher price, increased cost towards health and safety and skilled labour availability. The major impact has been on services, especially Long Lead imported items where there is limited local sourcing of materials.
Long Lead Item refers to items whose delivery/supply time is longer as they may be imported from other countries such as China, Malaysia among others. They may also be items that are built as per design. Therefore, these items are not bought off the shelf and take a longer time to reach construction sites.
The findings of JLL’s report demonstrates a price increase of overall 10 percent-12 percent for new projects and 8 percent-9 percent for existing projects. Contractors are increasing the overheads and profit, anticipating the uncertainty in the market majorly due to labour and material challenges.
The cost of labour has risen by 10 percent-15 percent, besides the regular increase, due to the knock-on impact of Covid-19 protocols and its associated costs. This includes costs related to compliance to new protocols like RT-PCR tests, idle time until test results, increased accommodation space for labour, quarantine facilities and sanitation measures. Additional labour retention and transportation costs have also contributed to the increase, the report said.
Since Q1 2020, steel is up 45 percent-47 percent to Rs 62,300/MT, copper up 70 percent-75 percent to Rs 7,45,000/MT, followed by aluminium at 50 percent-55 percent to Rs 2,03,385/MT, PVC items by 80 percent-90 percent to Rs 1,65,000/MT, and fuel (primarily diesel) by a whopping 43 percent-47 percent to about Rs 94/litre, the report said.
While the markets continue to be volatile, it is anticipated that by Q2-Q3 2022 the construction prices will stabilize.
The impact of the first wave of the pandemic on market benchmark rates has been neutral to significant depending on the asset classes, according to the report. There are a few challenges like idleness of plant and machinery along with enormous market competition which is compelling contractors to discount their margin as they bid for new projects. This discount is not sufficient to offset the overall hike in construction material and labour costs, the report noted.
The second wave has given an overall image that the Covid-19 restrictions are there to last for years and with lockdown, transportation, manufacturing challenges, all the stakeholders are anticipating material cost increase for the forthcoming months.
The cost impact post-second wave has been significant. The cost of new projects is up by 10 percent-12 percent while the existing projects has gone up by 8 percent-9 percent. The supply chain breakdown is the key reason as the cost of material and its freight account for 50 percent-60 percent of construction budgets.
“The volatility is here to stay for a while until industry shows a steady sign of recovery along with other sectors like manufacturing, hospitality, FMCG, infrastructure, leisure and so on,” said MV Harish, Executive Managing Director, Project Development Services, JLL India.
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