Construction Costs Surge by 39% in Big Cities, Impacting Housing Projects

The cost of construction for housing projects in major Indian cities has surged by 39% over the past four years, now averaging Rs 2,780 per square foot, as rising material and labour costs continue to impact the real estate sector, according to data from Colliers India.

In October 2020, the average construction cost for premium housing projects was Rs 2,000 per square foot. This rose gradually over the next few years, reaching Rs 2,200 per square foot in October 2021, Rs 2,300 in October 2022, Rs 2,500 in October 2023, and now stands at Rs 2,780 in October 2024. These figures reflect the average costs for Grade A residential buildings with 15 floors in tier-I cities.

Colliers India attributes the steady increase to both escalating labour costs and moderate hikes in construction materials such as sand, brick, glass, and wood. While the prices of critical materials like cement, steel, copper, and aluminium have remained relatively stable, the rise in labour costs has had the most significant impact on construction budgets. Labour costs alone saw a sharp 25% increase in the last year, contributing to the overall construction cost surge. In contrast, cement prices dropped by 15%, while steel prices decreased slightly by 1%.

Badal Yagnik, CEO of Colliers India, explained that although material prices have not risen drastically in the past year, the 25% hike in labour costs has stretched developers’ budgets. Labour accounts for over a quarter of the overall construction cost, and this increase has significantly affected operational expenses. The need for skilled labour, coupled with higher training, safety, and regulatory compliance costs, has further compounded the issue.

To manage these rising costs, real estate developers are reassessing budgets and optimizing their supply chains. Many are diversifying suppliers and sourcing materials locally to mitigate expenses. Additionally, investments in training programs and automation are becoming more prevalent as developers aim to address the volatility in the availability of skilled workers and enhance project scheduling efficiency.

As construction costs continue to rise, developers are looking for innovative solutions to stay within budget while meeting the demands of the growing housing market in India.