Increased costs, extended timelines: How the new labour codes could impact the realty, infra sector

New labour codes to raise construction costs, push project timelines for real estate and infra projects: Experts

India’s real estate and infrastructure sectors are bracing for operational and financial implications following the rollout of the new labour codes, which overhaul regulations on wages, social security, occupational safety and industrial relations.

Developers, contractors and industry observers said that the reforms—while aimed at formalisation, worker welfare and workplace safety—will reshape cost structures, productivity models and project timelines across real estate and infrastructure segments.

According to market data, India’s construction sector is the country’s second largest employment generator as it currently employs around 71 million workers. Over 80 percent of these workers remain unskilled, with only 19-20 percent classified as skilled workers. As infrastructure and real estate demand continues to surge, this sector is projected to employ up to 100 million workers by 2030.

Under the new framework, the definition of ‘wages’ has been standardized, meaning allowances can no longer be used extensively to reduce statutory contributions. As a result, Provident Fund and gratuity liabilities are set to rise, particularly for large construction workforces.

Developers estimate that labour-related cost outflows may increase 8–12 percent, especially on high-intensity projects such as townships, highways, metro networks and commercial complexes. Industry analysts say this pressure will ultimately reflect in higher construction and development costs—at a time when materials inflation and funding constraints are already squeezing margins.

Hitesh Singla, Co-Founder and Chief Information Officer at real estate consultancy firm Square Yards, said that companies are currently assessing the clarity and applicability of the new provisions across diverse project scales.

Singla said that the potential impact on costs is being evaluated, and most stakeholders expect some level of adjustment during the initial transition.

“Enhanced reporting, additional documentation, and system upgrades could add to administrative expenditure. Labour contractors may also revise their pricing to reflect new statutory expectations. However, any increase is likely to vary depending on project size, workforce composition, and existing compliance maturity,” he said.

Sujay Kalele, Founder and CEO, TRU REALTY, a Mumbai-based realty firm, said that the new labour framework would certainly reshape cost planning. Labour already makes up close to 25 to 30 percent of overall project cost, so any structural change naturally affects cost projections.

“With the new compliance requirements kicking in, we are estimating a baseline labour-cost increase of around 5 to 10 percent over the next 12 to 18 months of its implementation. This is a recalibration phase rather than a disruption. Costs will rise in the short term, yet the streamlined structure gives us stability and reduces future compliance uncertainty,” he said.

However, Kale added that the updated provisions around workforce flexibility, smoother exit thresholds and longer shift options of 8 to 12 hours, capped at 48 hours a week, could offset part of the cost escalation through productivity gains.

Manish Garg, CEO, Interarch Building Solutions Ltd, a NSE-listed firm, said that the uniform definition of wages would require organisations to revisit salary structures, leading to higher PF and gratuity contributions.

“This will increase fixed manpower costs but significantly strengthen long-term social security for workers. The move to make gratuity payable after one year, along with double wages for overtime, will particularly affect project-based construction sites where workforce churn and extended shifts are common,” he said.

Avneesh Sood, Director Eros Group, echoed similar views and said that with gratuity now becoming payable after just one year instead of five, the requirement that basic pay must make up 50 percent of total wages, and overtime paid at twice the regular rate, the financial impact on projects is immediate.

“We are already seeing labour cost estimates rise by 8–12 percent. PF contributions alone will increase by 30–35 percent,” he said.

For instance, he said, a worker whose basic pay was Rs 30,000 earlier will now move to Rs 40,000, which raises the employer’s PF contribution from Rs 3,600 to Rs 4,800 per month. On project sites with 400–500 fixed-term workers, the new one-year gratuity rule can add Rs 1–1.5 crore in annual liabilities.

Market observers said that for the real estate and infrastructure sector—where multi-location, outsourced and rotating workforce deployment is common—compliance may slow mobilization and execution phases.

They said that approvals and audits might add procedural time, which could affect RERA delivery commitments in housing projects if implementation is not streamlined.

Singla said that construction timelines might experience short-term recalibration as companies align with new procedural requirements.

“Activities linked to workforce verification, training, and documentation could initially slow certain site-level processes. The impact, however, is expected to differ across projects depending on contractor readiness and the scale of labour deployment. As stakeholders adapt, workflow disruptions are likely to reduce and operations may become more predictable,” he said.

Analysts said that large-scale infrastructure projects such as metro corridors, expressways and logistics hubs typically mobilize rotating labour across multiple locations and with tighter site certification and safety protocols, mobilization cycles may lengthen and could stretch project delivery schedules by a few months unless processes are standardized.

They, however, said that better site safety might reduce accidents, stoppages and insurance costs over time.