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India's construction industry saw a moderate 2-4% cost increase in 2024, down from 6-8% hikes in 2021-22, due to stabilized inflation and improved supply chains, according to CBRE's 2024-25 Construction Cost Trends report. Cement, steel, and aluminum prices dropped, but labor costs rose by 5% due to shortages, keeping overall expenses high. Mumbai led fit-out cost increases (4-6%), while Delhi-NCR, Bengaluru, and Pune saw 3-4% hikes due to luxury residential and commercial projects. Sustainability and energy-efficient construction are shaping future trends, with Tier-2 cities also adopting green building practices, influencing long-term market stability and investment value.
In 2024, the construction industry in India experienced a modest 2-4% increase in greenfield construction costs compared to 2023, a significant slowdown from the 6-8% hikes observed in 2021-22. This change is attributed to easing supply chain disruptions and stabilizing inflationary pressures, as noted in the India Construction Cost Trends 2024-25: Navigating Costs in a Transforming Landscape report by CBRE. The rise in costs was significantly lower than previous years, indicating a more stable environment for construction activities. Advertisement
Key construction materials, such as cement, steel, and aluminum, saw price reductions. Cement prices dropped by 6-8%, steel by 3-5%, and aluminum by 0-2%, offering some relief to the construction industry. However, materials like wood and stone experienced price hikes of 3-6% and 0-2%, respectively, driven by localized demand. For instance, the rise in wood prices could be attributed to increased demand from the residential housing sector, while stone prices saw a slight increase due to higher costs in infrastructure projects.
Despite the moderation in material prices, labor costs saw a 5% increase in 2024, primarily due to ongoing labor shortages. This shortage affected skilled, semi-skilled, and unskilled labor, resulting in an upward push on labor wages. The increase in labor costs offset the savings on materials, keeping overall construction costs high. For example, the cost of hiring skilled workers in metropolitan cities like Mumbai and Delhi has become a major concern, with developers facing challenges in securing qualified labor at a reasonable cost.
In terms of cities, Mumbai saw the highest year-on-year increase in fit-out costs, rising by 4-6% in 2024, driven by the high demand for office spaces and luxury residential buildings. Similarly, Delhi-NCR, Bengaluru, Chennai, Hyderabad, and Pune recorded a 3-4% increase in construction costs. In Delhi-NCR, high-rise residential projects with 30 floors now cost between INR 5,500-6,100 per square foot, while mid-rise buildings (12 floors) range from INR 3,100-3,500 per square foot. These price variations are reflective of the demand for premium developments in urban centers.
India's real estate sector is showing resilience as it continues to drive economic growth, with the country expected to become the world's third-largest construction market by 2025. Major cities like Bengaluru are seeing the rapid development of mixed-use commercial and residential spaces. In Bengaluru's Outer Ring Road (ORR) area, for example, high-end residential towers with luxury amenities are setting the standard for new developments, which in turn drives up construction costs. Similarly, Pune's rising demand for IT parks has spurred significant commercial development, further increasing construction activity in the city.
Anshuman Magazine, Chairman & CEO of CBRE India, South-East Asia, Middle East, and Africa, emphasized the growing importance of sustainability and technology integration within the construction sector. The demand for energy-efficient buildings in cities like Delhi and Mumbai, where environmental regulations are tightening, is expected to influence construction trends. Additionally, developers in Tier-2 cities like Lucknow and Indore are starting to adopt more sustainable practices, such as the use of green building materials and energy-efficient designs, which are pushing up construction costs but providing long-term value for investors.
In conclusion, the Indian construction industry is navigating through a period of moderation in material costs but faces challenges due to labor shortages and rising demands for sustainable development. Understanding these cost variations across different asset classes, including residential, commercial, and industrial projects, will be crucial for long-term market stability and continued growth. The focus on quality, sustainability, and the adoption of new technologies will shape the future of real estate development in India.
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