Construction Costs To Be Volatile

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Construction Costs To Be Volatile

Home Prices Rising On Renewed Demand

With just-in-case approach, builders have begun to stack up material, diversified professional services and investment management company Colliers says

NEW DELHI, Dec 15 (The CONNECT) - Pushed by a 20% increase in key material costs, construction costs rose 10-12% YoY as of March 2022, a Colliers’ study shows. 

Key construction materials such as cement, steel, aluminium, copper saw a significant increase, along with fuel and labour costs due to geopolitical issues, inflation etc. This created a challenge for developers who were facing high debt and liquidity concerns.

However, by November 2022, overall costs of key construction materials (steel, cement, aluminium and copper) declined by 8%, as compared to March 2022. Aluminium registered highest decline of 55%, followed by Steel at 6% decline. However, Cement and Copper costs increased by 9% and 3% respectively along with labour costs. This, coupled with decreased fuel costs have kept overall construction costs stable since March 2022.

“Costs of key construction materials are likely to remain volatile for next few months due to uncertainties created by geo-political issues, persistent lockdowns in China and a probable global recession,” said Ramesh Nair, Chief Executive Officer, India and Managing Director, Market Development, Asia, Colliers.

Prices of key construction materials will hinge on multiple factors including global economic situation, inflation rates and supply constraints. Therefore, developers are likely to push new launches till the input prices further decline, as any further surge in the cost of construction materials would impact the timely delivery of ongoing projects and disrupt their cashflows resulting in increase in housing prices, Nair said.

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“Developers are planning their projects well in advance, and aiming timely project completions to cater to the surging demand, according to Jatin Shah, Chief Technical Officer, India & Managing Director, Technical Due Diligence, Colliers.  

They are increasingly adopting just-in-case approach to store the materials well in advance to avoid supply bottlenecks and unexpected price hikes, Shah said.

Residential prices have been on the rise, increasing 6% YoY in Q3 2022, led by a combination of increased input costs and robust demand. Looking ahead, prices may be more or less stable for some quarters as the market is now seeing increasing interest rates, said Vimal Nadar, Senior Director and Head of Research, India, Colliers.

At the same time, some investor-markets with continued demand may continue to see some increase in prices, he said.

In the industrial sector, rents can see an upward movement led by robust demand and high costs, Nadar opined.

Colliers (NASDAQ, TSX: CIGI) is a leading diversified professional services and investment management company. With operations in 63 countries, our 18,000 enterprising professionals work collaboratively to provide expert real estate and investment advice to clients. For more than 27 years, our experienced leadership with significant inside ownership has delivered compound annual investment returns of approximately 20% for shareholders.

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