The cost of real estate construction in India has risen by 11% over the past year, according to a recent report by Colliers India. This increase is largely attributed to a significant rise in labour costs, which have surged by 25% annually. Labour expenses now account for over 25% of total construction costs, placing additional strain on budgets and operational expenditures. A growing demand for skilled workers, along with costs associated with training, safety, and compliance, has further driven up these costs, explains Badal Yagnik, CEO of Colliers India.

Alongside rising labour costs, there has been a moderate increase in the prices of essential construction materials like sand, bricks, glass, and wood. However, the prices of other key materials have shown mixed trends. Cement prices have seen a 15% drop, while steel prices decreased by a modest 1% over the same period. These fluctuations in material costs, while easing some pressure on developers, have not fully offset the sharp rise in labour-related expenses.

The residential real estate sector has experienced an 11% increase in construction costs, driven by the growing demand for high-quality housing and amenities in gated communities. Despite these challenges, other real estate segments, including commercial, industrial, and warehousing, have experienced significant growth in 2024. Notably, the office market alone has seen a 37 million square feet increase in new completions in the first nine months of the year, signaling strong demand despite rising construction costs.

To tackle the increasing costs, developers are focusing on cost optimization strategies. This includes reassessing budgets, improving supply chain management, and diversifying suppliers. Many developers are also adopting localized sourcing of construction materials to reduce costs and mitigate the impact of supply chain disruptions. These efforts are essential in sustaining growth within the real estate sector, especially amidst ongoing price pressures.

Overall, while construction costs are rising, the Indian real estate sector remains resilient, with developers employing strategic approaches to navigate these challenges and sustain growth across various segments of the market.