The latest data from the TruBoard Real Estate Construction Cost Index indicates that developersare experiencing relatively mild cost pressures. In the quarter ending December 2023, the index rose by 0.7% compared to the same period a year earlier, representing a slightly higher increase than the 0.3% uptick observed in the previous quarter. Cost movements during the quarter have been in line with our expectations. Notably, the most significant price hikes were observed in sectors such as metal casting, granite, white cement, and asbestos. However, the index remained unchanged compared to the preceding quarter.
Looking at the broader trend, the index reveals that construction costs saw an average increase of 5% in FY23 compared to FY22.
Sangram Baviskar, Managing Director, Real Estate Solutions at TruBoard Partners said, “Ourlatest analysis reveals a resilient real estate market, defying challenges such as fluctuating interest rates and inflation threats. Our index demonstrates controlled costs, promising favorable conditions for developers. The upcoming quarters would be interesting as we monitor the dynamic interplay of construction costs and sales.”
Anuj Agarwal, Chief Economist and Head of Research at TruBoard Partners said, “Commodity inflation as gauged by WPI has bottomed out. Recent data from the World Bank indicates a notable uptick in global prices for essential metals during Q3FY24 compared to the previous year. Specifically, iron ore prices have surged by 30% year-on-year and 12% quarter-on-quarter, a trend that echoes in the materials component of our construction cost index. However, the specter of ongoing conflicts, such as the Russia-Ukraine war and the Israel-Hamas conflict, continues to cast uncertainty over commodity prices. Furthermore, the prospect of central banks implementing rate cuts in the coming year may drive capital inflows into commodity assets. Nonetheless, we anticipate that construction costs will see relatively moderate growth over the next six months, likely remaining within a range of less than 5%.”
