Tatsat Chronicle Magazine

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Greenfield construction cost rises 5-7b% with labour cost rising by 8-10%

Greenfield infrastructure
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CBRE South Asia Pvt. Ltd., India’s leading real estate consulting firm in its report, ‘Project Management 2.0 – Driving Value in the ‘New Normal’ Era’ has said that the year 2022 recorded an escalation in material costs due to curtailed production amid the pandemic and increased global shipping costs led by supply chain bottlenecks.

The overall greenfield construction cost increased by 5-7% in Q3 2022 year-onyeaar (Y-o-Y). The report examines the current market landscape and deliberates on factors influencing cost trends across key asset classes.

Labour cost increased by 8-10% and reinforcement steel prices by about 20% Y-o-Y during Q3 2022 (reinforcement steel prices dip by 14% Q-o-Q in Q3 2022). Resolution of certain supply chain disruptions and reduction in price pressures in Q3 2022 brought about a directional swing and reduction in the index across most cities. We expect this trend to continue till the end of 2022.

Looking ahead, inflationary pressures are widely expected to abate in 2023. This, alongside the resolution of supply chain disruptions and more active policy intervention from the government, might limit hikes in material prices.

The report also highlights that cost pressures are likely to persist in the short term, even as overall cost increase is expected to recede in the coming quarters. Amidst ongoing geopolitical complexities, it is anticipated that material prices may moderate in 2023, with an expectation of longer-than-usual lead times for material delivery and short-term labor scarcity.

The outlook for construction costs remains stable but cautious, as market volatility is likely to persist in 2023 along with monetary tightening, continued high inflation, a possibility of a recession in developed economies and geopolitical turmoil-related challenges going forward. Therefore, CBRE forecasts a marginal rise in the overall construction costs during 2023 across cities, with Mumbai likely to witness a sharper rise.

However, strong demand for construction is likely to continue to push up employment in the construction sector. Currently, the availability of skilled construction workers remains a challenge despite increased wages, benefits, and incentives being offered by employers.Fuel price volatility may also impact the overall input costs in 2023.

The report also suggests that the overall impact of costs related to health initiatives such as sanitization, periodic check-ups, labour maintenance, and additional insurance requirements will subside in 2023. CBRE anticipates that for 2022-203, the impact of health and wellness initiatives on the overall cost will further reduce by around 1.5-2%.

Anshuman Magazine, Chairman and CEO – India, South-East Asia, Middle East & Africa, CBRE, said, “Despite supply constraints, the demand side of the equation is bolstered this year by rental increases and market demand. Construction demand is likely to remain strong in the near term. We expect a comparatively stable outlook for the Indian economy with the possibility of potential economic slowdown; however, considerable pent-up demand for new construction—including government infrastructure projects—should largely sustain construction activity in India.”

Gurjot Bhatia, Managing Director, Project Management – India, SE Asia, Middle East, and Africa, said, “As the cost of major materials such as cement and steel has declined Q-o-Q and a gradual improvement in supply chain bottlenecks was witnessed during Q3 2022, construction cost has stabilized across asset classes and cities. Despite headwinds, construction demand is expected to remain strong in the near term. Considerable pent-up demand for new construction should largely sustain the marginal increase in cost construction.”

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