Construction costs up 28% since pre-pandemic levels but remain stable since March 2022: Report

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Cost of construction for residential buildings is now 28 percent higher than that of pre-pandemic levels but continues to be stable, compared to March this year, says a report by Colliers India.

The costs of key construction materials have jumped 32 percent in a span of three years, affecting margins and operational schedule of construction companies, it said.

In its report 'Construction costs update', the consultant has done analysis on prices of key construction materials and also the overall average construction costs for standard Grade-A residential buildings of 15 floors and also for standard pre-engineered Grade A industrial buildings.

The government’s efforts such as reducing exports and cutting import duties have kept raw material costs in check over the last few months, it said.

As of March 2022, construction costs rose 10-12 percent YoY, owing to a 20 percent increase in key material costs. Key construction materials such as cement, steel, aluminium, copper saw a significant increase, along with fuel and labour costs due to geopolitical issues, inflation, etc. This created a challenge for developers who were facing high debt and liquidity concerns.

However, by November 2022, overall costs of key construction materials (steel, cement, aluminium and copper) declined by 8 percent, as compared to the costs in March 2022. Aluminium registered highest decline of 55 percent, followed by steel at 6 percent decline. However, cement and copper costs increased by 9 percent and 3 percent respectively along with labour costs. This, coupled with decreased fuel costs have kept overall construction costs stable since March 2022.

“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,” said Ramesh Nair, Chief Executive Officer, India and Managing Director, Market Development, Asia, Colliers.

“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 and Managing Director, Technical Due Diligence, Colliers.