The latest update from the TruBoard Real Estate Construction Cost Index shows that developers are facing minimal cost pressures. In the quarter ending December 2023, the index increased by 0.7 percent compared to the same period the previous year, slightly higher than the 0.3 percent rise seen in the previous quarter. Costs moved as anticipated during this period. Significant price increases were noted in sectors like metal casting, granite, white cement, and asbestos. However, the index remained unchanged compared to the previous quarter. Looking at the bigger picture, construction costs on average rose by 5 percent in FY23 compared to FY22.
Sangram Baviskar, MD of Real Estate Solutions at TruBoard Partners, suggests that the latest analysis indicates a resilient real estate market, despite challenges like fluctuating interest rates and inflation. The index reflects controlled costs, which bodes well for developers.
Anuj Agarwal, Chief Economist and Head of Research at TruBoard Partners, notes that commodity inflation, as measured by the WPI, has hit a low point. Recent data from the World Bank shows a significant increase in global prices for essential metals in Q3FY24 compared to the previous year, with iron ore prices rising by 30 percent year-on-year and 12 percent quarter-on-quarter. However, ongoing conflicts like the Russia-Ukraine war and the Israel-Hamas conflict continue to cast uncertainty over commodity prices. Additionally, the possibility of central banks cutting rates in the coming year could lead to increased investment in commodity assets. Nevertheless, construction costs are expected to grow moderately over the next six months, staying below a 5 percent range.
