CBRE South Asia Pvt. Ltd announced the findings of its report that recorded an escalation in material costs due to curtailed production amid the pandemic and increased global shipping costs led by supply chain bottlenecks in 2022. The overall Greenfield construction costs increased by 5-7% in Q3 2022 Y-o-Y.
Labour cost increased by 8-10% and reinforcement steel prices by about 20% Y-o-Y during Q3 2022 (reinforcement steel prices dipped 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%.
Greenfield construction costs stabilised across asset classes. As the cost of major materials such as cement and steel declined Q-o-Q and a gradual alleviation of supply chain bottlenecks was witnessed during Q3 2022, Greenfield construction costs also stabilised across asset classes and cities.
The situation is likely to remain unchanged going forward; however, a cascade effect of the current geopolitical situation and global inflationary pressures is anticipated to impact the Greenfield construction costs marginally going forward.
