JLL Predicts 6% Average Rise in Construction Costs for FY 2024 in India

JLL’s latest Construction Cost Guide forecasts a 6% average increase in construction costs across various sectors in India for the Financial Year (FY) 2024.

Mumbai maintains its status as the most expensive city for construction, while Chennai offers a more cost-effective alternative. The escalation in Mumbai’s costs can be attributed to the heightened prices of essential construction materials such as cement, reinforcement steel, structural steel, and stones. The guidebook offers valuable insights into market trends and construction expenses of real estate assets in major Indian markets, featuring a cost matrix illustrating different styles and quality levels, alongside an analysis of market trends for major building materials.

Jipu Jose James, Managing Director of Project Development Services (PDS) at JLL India, remarked, “Businesses are currently reassessing their real estate decisions to optimize spending. While the exact impact of the pandemic on construction costs remains a topic of discussion, the prevailing trend is evident – construction costs are on the rise. Consequently, customer expenditure is expected to prioritize elements enhancing the end-user experience. Understanding and efficiently managing costs are crucial for maintaining budget control and delivering economically viable, high-quality projects.”

Expressing confidence in the future, James expressed a strong belief in the growth of construction activity in India.

Rising Labor Costs:

Labor emerges as a critical driver of economic growth in the construction sector. Consequently, as construction extends into non-metropolitan and rural areas, the supply-demand gap is narrowing, resulting in a more stable labour market and reduced wage disparities. Presently, labour rates are witnessing an average annual increase of 6% over the past three years, impacting construction costs by roughly 2%. The industry heavily relies on its workforce, evident from its expansion to around 71 million employees in FY2023, up from 63.98 million the previous year, driven by urbanization and escalating infrastructure demands. However, this growth predominantly pertains to unskilled labour, exacerbating the shortage of skilled workers. The scarcity of vocational training institutions further impedes skill development.

Looking Ahead:

Construction costs are expected to experience a global surge in the coming year. Despite uncertainties, opportunities for industry transformation persist. The construction and real estate sectors remain focused on sustainability, digitization, and adaptability, shaping their future. By investing in enhanced agility and efficiency, enduring value can be generated beyond 2024.

Industry response

Hitesh J Thakkar, Vice President of NAREDCO, stated that the surge in construction costs will undoubtedly impact the real estate industry, potentially leading to an increase in house prices per square foot. He added that while every developer endeavours to absorb such surges to prevent market disruption, there are limits to this practice. He highlighted that the recent surge in steel and cement prices will likely have an adverse effect on the real estate sector. Thakkar also mentioned that labour costs could be addressed in the future with the introduction of new technologies and skilled labor.

Keval Valambhia, COO of CREDAI, highlighted the challenges faced by Mumbai developers due to soaring construction costs and high BMC premium charges. He emphasized the burden of approval fees, which average INR 55,521 per sq. m., surpassing other cities like Chennai and Pune. Valambhia stressed the substantial disparity in premiums between Mumbai and other cities, hindering both real estate growth and the city’s economic development. He urged the BMC to rationalize premium structures and streamline approval processes to foster a conducive environment for real estate growth. Additionally, Valambhia called for state government intervention to rationalize stamp duty rates, aiming to enhance affordability in Mumbai. He reiterated their commitment to promoting affordability, accessibility, and inclusivity in housing and urban infrastructure.

Chintan Vasani, Founder Partner of Wisebiz Developers, remarked, “With the recent surge in cement and steel prices, the real estate industry is encountering a cause for concern. These two commodities collectively constitute a substantial portion of project construction costs, and their escalation can yield a noticeable impact. Nevertheless, this scenario may offer a glimmer of hope for potential homebuyers. Amidst escalating construction costs, acquiring your dream home sooner could potentially prove beneficial in the long term, as home prices are anticipated to rise.”