The cost of constructing new projects in India has risen by 5-7% during the July-September period of 2022 (Q3CY2022) when compared to the same period last year (Q3CY2022) amid an increase in material costs, says the latest report by property brokerage firm CBRE South Asia.
According to the report titled Project Management 2.0 – Driving Value in the ‘New Normal’ Era, the price escalation in construction materials is being fuelled by curtailed production due to the pandemic and increased global shipping costs led by supply chain bottlenecks.
Meanwhile, labour cost during the three-month period ending September 30, 2022, also increased by 8-10% when compared to the same period last year, putting further pressure on project building costs. A 20% annual increase in steel prices has only aggravated the situation.
“Inflationary pressures are widely expected to abate in 2023. This, alongside the resolution of supply chain disruptions and more active policy intervention from the government, might limit hikes in material prices,” the report said, adding that cost pressures are likely to persist in the short-term even as overall cost increase is expected to recede in the coming quarters.
“Amid ongoing geopolitical complexities, the outlook for construction costs remains stable but cautious, as market volatility is likely to persist in 2023 along with monetary tightening, continued high inflation, a possibility of a recession in developed economies and geopolitical turmoil-related challenges going forward. We forecast a marginal rise in the overall construction costs during 2023 across cities, with Mumbai likely to witness a sharper rise,” it said.
However, strong demand for construction is likely to continue to push up employment in the construction sector. Currently, the availability of skilled construction workers remains a challenge despite increased wages, benefits, and incentives being offered by employers.
“Despite supply constraints, the demand side of the equation is bolstered this year by rental increases and market demand. Construction demand is likely to remain strong in the near term. We expect a comparatively stable outlook for the Indian economy with the possibility of potential economic slowdown; however, considerable pent-up demand for new construction—including government infrastructure projects—should largely sustain construction activity in India,” says Anshuman Magazine, chairman and CEO -India, South-East Asia, Middle East & Africa, CBRE.
