MUMBAI: Driven by a 25 per cent surge in wages, the overall construction cost has jumped 11 per cent on-year, this year, despite stable prices for key materials like steel and aluminium, a report has said.
The report also warned that volatilities in prices of construction materials and labour cost pressures are likely to push overall construction costs further upward.
According to a Colliers India report, released Thursday, the key factor for the cost rise is the labour cost surge to the tune of 25 per cent in the private sector.
“Over the past year, the average cost of construction is estimated to have risen up to 11 per cent, mainly due to a significant surge in labour costs coupled with a moderate price increase in construction materials like sand, bricks, glass, wood etc,” the report said.
“Notably, the cumulative effect of a rise in the prices of four key construction materials including cement, steel, copper and aluminium have been relatively low. In fact, average cement prices have declined 15 per cent, while average steel prices have come down by 1 per cent over the last 12 months,” the report further read.
Price/cost change of key construction cost components (Oct 24)
While steel prices are down 1 per cent this year (October to October) it has surged by 57 per cent from October 2019 and now, while copper is down 15 per cent, it has surged 30 per cent in the past five years.
When it comes to copper, it rose 19 per cent and 91 per cent respectively, and aluminium is up 5 per cent, and 57 per cent, respectively.
On the other hand, the labour cost has skyrocketed: while this year it is up 25 per cent, the difference is a full 150 per cent over the past five years.
While the rise in prices of key construction materials was relatively modest over the past year, labour costs have been driving the overall cost of construction upward. With labour accounting for more than one-fourth of overall construction cost, a 25 per cent annual rise in labour costs has stretched construction budgets and impacted operational expenses.
“Moreover, the need for skilled labour and the associated costs for training, safety and regulatory compliance further adds to spiralling labour costs,” said Badal Yagnik, chief executive at Colliers India.
This cost escalation is the highest in the residential segment, according to the report - as much as 11 per cent more.
“Despite rising construction costs across realty segments, the commercial and industrial and warehousing segments saw robust new supply in 2024. For instance, the office market saw 37 million square feet of new completions in the first nine months of 2024, while the industrial and warehousing segment saw about 22 million square feet addition.