Greenfield construction cost for developers up 5-7% in Q3 2022: Report

Labour cost increased 8-10% and reinforcement steel prices went up about 20%, says study scanning cities

Greenfield construction costs for real estate companies in India increased 5-7 per cent year-on-year (Y-o-Y) in the third quarter of this calendar year, said a report on Thursday.

The impact of the pandemic, global shipping costs and supply chain bottlenecks increased material costs, said the report by international real estate firm CBRE.

Labour cost increased by 8-10 per cent and reinforcement steel prices went up about 20 per cent Y-o-Y in Q3 2022. 

Some supply chain disruptions have been resolved and price pressures have reduced: a trend expected to continue till the end of this year. “Cost pressures are likely to persist in the short term, even as overall cost increase is expected to recede in the coming quarters. Amidst ongoing geopolitical complexities, it is anticipated that material prices may moderate in 2023, with an expectation of longer-than-usual lead times for material delivery and short-term labour scarcity,” the report said.

Inflationary pressures are widely expected to ease next year. Alongside the resolution of supply chain disruptions and more active policy intervention from the government, might limit hikes in material prices. 

Strong demand for construction is likely to increase employment in the sector. The availability of skilled workers remains a challenge despite increased wages, benefits, and incentives being offered by employers. Fuel price volatility may also impact the overall input costs in 2023, as per report.

“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,” said Anshuman Magazine, chairman and chief executive officer, India, South-East Asia, Middle East & Africa, CBRE.

Pent-up demand for new construction—including government infrastructure projects—should largely sustain the sector in India. 

CBRE forecasted a marginal rise in the overall construction cost in 2023 in cities, with Mumbai likely to witness a sharper increase.

As the cost of major materials such as cement and steel has declined Q-o-Q and a gradual improvement in supply chain bottlenecks was witnessed during Q3 2022, construction cost has stabilised across asset classes and cities, said Gurjot Bhatia, managing director, project management - India, SE Asia, Middle East, and Africa.