India’s overall construction costs rose up to 11 per cent annually

India’s overall construction costs rose up to 11 per cent annually across residential, commercial and industrial segments in 2024.

After a period of sharp rise in prices of key construction materials over the last few years, prices have relatively stabilised in 2024.

According to Colliers, the pace of rise in prices of key materials including cement, steel, copper and aluminium have slowed down on an annual basis during 2024, across major real estate markets.

In fact, average cement prices have seen the maximum decline by 15 per cent on an annual basis. At the same time, average steel prices, have seen a marginal 1 per cent decrease over the last 12 months.

Despite the decrease in average prices of cement and steel, overall construction cost has increased by up to 11 per cent YoY due to significant increase in labour costs.

Marginal to moderate increase in fuel costs and in the average prices of aluminium, copper, sand, brick, glass, wood etc. have also contributed to the overall increase in construction cost. This rise is more significant in the residential segment.

Amongst the key construction materials, the average price of steel and aluminium has remained relatively stable since 2022. In contrast, average cement prices have declined significantly and currently stand at INR 253/50 kg bag - the lowest level since 2020.

Conversely, copper prices have been fluctuating more as compared to other key construction materials. Average copper prices reached an all-time high of INR 783/kg in October 2024.

Rising cost of construction in India is significantly influenced by increasing labour costs in the private sector, driven by high demand for construction workers, especially in the major cities.

Given the heightened demand for homes, offices, shopping malls, retail outlets, industrial warehouses etc., labour retention and accommodation expenditure have attained criticality during the construction phase. Moreover, spiralling labour costs can be attributed to the high cost of living in urban areas and regulatory changes aimed at improving worker welfare. Overall, escalating labour costs are stretching construction budgets, impacting operational expenses and leading to higher overall project costs.

As of October 2024, cost of construction for residential segment witnessed an 11 per cent increase YoY.

With rising cost of construction, developers are relooking at their strategies, especially while catering to the price-sensitive consumer base.

Additionally, higher borrowing costs have prompted developers to opt for cost optimisation in their procurement strategies.

Construction cost increase can potentially reduce profitability margins of developers, especially in the affordable housing segment.

As of October 2024, cost of construction for commercial segment was at around INR 2,850/sq ft.

Although, construction cost in the segment grew by 6 per cent annually, new supply in the office market continued to remain upbeat, led by healthy demand. 2024 has already witnessed 37 million sq ft of new completions in the first nine months of the year.

Driven by long-term financial benefits and heightened occupier demand for quality office spaces, developers are increasingly using energy-efficient and sustainable materials in their commercial space offerings.

The cost of construction for the industrial segment largely remained stable in the last year. However, as compared to the initial years of the pandemic in 2020, construction cost in 2024 has increased by 27 per cent.

With relative stability in construction cost in the industrial segment and steady uptick in warehousing demand, new industrial supply has largely been as per scheduled timelines. The top five cities of the country are likely to witness new supply to the tune of 25-30 million sq ft in 2024.

Moreover, in tandem with evolving demand requirements, developers are increasingly focusing on automation and sustainable elements in their under-construction projects. Additionally, developers are continuously reassessing their cost-revenue structures, anticipating potential volatilities in future construction.

I sold a commercial property and reinvesting in residential property. I am investing in joint names and my wife did not contribute for the investment. Will the capital gains exemption be available? Please clarify. Jeswant Nair, Sharjah

You will still be exempted from capital gains tax. The courts have held that where consequent to transfer of the capital assets the investment of net consideration is required to be invested in terms of section 54F for purchase or construction of residential house, and in case such house property is purchased in joint names, the assessee will be entitled to exemption. This is so even if the assessee’s wife had contributed money for the purchase and the investment made just in joint names.

My relative wants to gift an immovable property located in Hyderabad? Does it require registration? Deepak Sinha, Dubai.

Gifting immovable property should be accompanied with a registered gift deed. Once the immovable property is registered along with a gift deed in your name, you get the legal ownership of the property and right to possession to such property.