Greenfield construction costs rise in 3rd quarter

The overall greenfield construction costs increased by 5 per cent to 7 per cent in Q3 2022 Year-on-Year.

Hyderabad: 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 costs increased by 5 per cent to 7 per cent in Q3 2022 Year-on-Year.

CBRE South Asia, the leading real estate consulting firm, announced the findings of its report, ‘Project Management 2.0 – Driving Value in the ‘New Normal’ Era’ which examines the current market landscape and deliberates on factors influencing cost trends across key asset classes.

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During the quarter, labour cost increased by 8 per cent to 10 per cent and reinforcement steel prices by about 20 per cent and the CBRE looks at the trend to continue till the end of 2022. However, 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 labour 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.

Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE, said that 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, “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.”