Key building materials and labour face inflationary pressures

[ecis2016.org] The high construction costs are largely attributable to corresponding high prices of key construction materials like cement, reinforcement steel, structural steel, stones, copper, etc., says a JLL report

For the past year, the built environment has remained heavily loaded with a price increase of major key construction materials, resulting in cost uncertainty on a major scale in the Indian construction industry.  Chennai is at the lower end of the cost spectrum against which the cost of Mumbai is 14% higher. Taking into account the other metros like Bangalore, Pune and Delhi, the overall average cost increase in Mumbai is 10%-12% according to the JLL’s ‘Construction Cost Guide Book’. The price rise is largely attributable to corresponding higher prices of key construction materials like cement, reinforcement steel, structural steel, stones, and so on. The guidebook throws light on the market trends, and the construction cost of real estate assets across major markets of India and includes a cost matrix representing different style and quality levels, and an analysis of market trends of the major building materials.

You are reading: Key building materials and labour face inflationary pressures

The cost of labour too has risen by 12%-15%, besides the regular increase, due to the knock-on impact of COVID-19 protocols and its associated costs. This includes costs related to compliance to new protocols like RT-PCR tests, idle time until test results, increased accommodation space for the same amount of labour, quarantine facilities and sanitation measures. In addition to that, additional labour retention and transportation costs put together have contributed to the increase.

Nevertheless, the growth pattern has experienced a sustained upswing, allowing the forecasts for 2022 to reach new heights. The industrial, residential and warehousing sectors have seen a significant increase in investment, accounting for around 40% of overall investment this year, with total investment approaching Rs 370 billion. Simultaneously, commercial office spaces remained the most preferred asset type in real estate according to the report.

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Since Q1 2020, steel prices have increased 45%-47% to Rs 62,300/MT, while copper is up 70%-75% to Rs 7,45,000/MT, followed by aluminium at 55%-50% to Rs 2,03,385/MT, PVC items by 80%-90% to Rs 1,65,000/MT and last, but not the least, fuel (primarily diesel) by a whopping 43%-47% to about Rs 94/litre.

Some major reasons for this cost increase are rising raw material shortage, rising global material prices, steel, cement, aluminum, copper and PVC production challenges, logistic challenges and increasing fuel prices, to name a few. With the onset of the pandemic that resulted in a sudden slowdown in economic activities globally, it was amply evident that commodities would go through a period of market turbulence.

“Going ahead, we see cost as one of the key drivers in real estate decisions. If you really see the overall project development and the project costs, materials almost account for close to 60% of the total construction cost and we have been seeing this material increase randomly. There has been a cost overrun on projects. Now, this is beyond the contingency inflation anticipated during the planning stage. The projects have been delayed in the last two years due to COVID-19 and the current geopolitical scenario is also impacting this,” said MV Harish, managing director, PDS, JLL India.

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Average cost of constructing a luxury residential apartment in a high-rise and mid-rise building in key cities

The average cost of construction for a luxury residential apartment in a high-rise building in Mumbai is Rs 5,975 per sq ft, while in Delhi and Pune, the price would be 5,725 per sq ft and Rs 5,450 per sq ft, respectively, while in Hyderabad such a house would command Rs 5,300 per sq ft. Similarly, constructing a mid-rise luxury apartment will cost Rs 4,175 per sq ft in Mumbai and Rs 4,000 per sq ft in Delhi.

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Average cost of constructing a commercial building in a high-rise and medium-rise building in key cities

While constructing a medium-rise commercial building in Mumbai would cost Rs 3,675 per sq ft, the price would be Rs 3,525 per sq ft in Delhi and Rs 3,250 per sq ft in Bangalore for constructing a similar property. Construction costs for medium-rise commercial buildings in Hyderabad and Bangalore are almost at the same level. Similarly, the construction cost for a high-rise commercial building in Mumbai is Rs 4,175 per sq ft, while it is Rs 3,975 per sq ft and Rs 3,800 per sq ft in Delhi and Pune, respectively. The cost of constructing a high-rise commercial property in Chennai is the lowest – i.e., Rs 3,650 per sq ft.

These costs are based on the evaluation of awarded work orders in the given quarters. The report adds that while the price rise has been unparalleled in the previous six to eight months, it is projected to continue for some time.

Source: https://ecis2016.org/.
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Source: https://ecis2016.org
Category: Lifestyle