Key building materials like steel, cement, and labour are facing inflationary pressures
Steel is up by 45-47%, Copper by 70-75%, and Aluminium by 55-50%.
Mumbai, 06 April 2022: 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 guidebook ‘Construction Cost Guide Book’ launched by JLL today. 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.
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 INR 370 billion. Simultaneously, commercial office spaces remained the most preferred asset type in real estate according to an analysis guidebook ‘Construction Cost Guide Book’.
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. Since Q1 2020, steel is up 45-47% to INR 62,300/MT, copper also at 70-75% to INR 745,000/MT, followed by aluminium at 55-50% to INR 203,385/MT, PVC items by 80-90% to INR165,000/MT, and last, but not the least, fuel (primarily diesel) by a whopping 43-47% to about INR 94/litre.
Cost of Key materials across various cities
The cost of labor to has risen 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 labor, quarantine facility, and sanitation measures. In addition to that, additional labour retention and transportation costs put together have contributed to the increase.
Some major reasons for this cost increase are rising raw material shortage, rising global material prices, steel, cement, aluminum, copper & PVC production challenges, logistic challenges, and increasing Fuel Price 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 percent 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.
The 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 INR 5,975 per sq. ft, while in Delhi & Pune, the price would be 5,725/sq. ft and 5,450 respectively, while in Hyderabad such a house would command INR 5,300/sq. ft. Similarly, constructing a mid-rise luxury apartment will cost INR 4,175/ sq. ft in Mumbai and INR 4,000/ sq. ft in Delhi.
The 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 INR 3,675/sq. ft, the price would be INR 3,525/sq. ft in Delhi and INR 3,250/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 INR 4,175/sq. ft, while it is INR 3,975/sq. ft and INR 3,800/sq. ft in Delhi and Pune. The cost of constructing a high-rise commercial property in Chennai is the lowest, i.e., INR 3,650/sq. ft.
JLL has made a concerted effort to compare quarterly cost variances in several Indian cities. Bangalore's cost in Q4 2019 is set at 100. These are based on the evaluation of awarded work orders in the given quarters. To say the least, and unparalleled in the previous six to eight months, however, this rise is projected to continue for some time.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $19.4 billion, operations in over 80 countries and a global workforce of more than 98,000 as of December 31, 2021. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.
JLL is India’s premier and largest professional services firm specializing in real estate. The Firm has grown from strength to strength in India for the past two decades. JLL India has an extensive presence across 10 major cities (Mumbai, Delhi NCR, Bengaluru, Pune, Chennai, Hyderabad, Kolkata, Ahmedabad, Kochi, and Coimbatore) and over 130 tier-II and III markets with a cumulative strength of close to 12,000 professionals. The Firm provides investors, developers, local corporates and multinational companies with a comprehensive range of services. These include leasing, capital markets, research & advisory, transaction management, project development, facility management and property & asset management. These services cover various asset classes such as commercial, industrial, warehouse and logistics, data centers, residential, retail, hospitality, healthcare, senior living, and education. For further information, please visit jll.co.in.