Construction cost of greenfield infra projects increased by 5-7% Q32022: CBRE

The year 2022 recorded an escalation in material costs due to curtailed production amid the pandemic and increased international shipping costs led by supply chain bottlenecks.

The overall construction cost of greenfield infrastructure projects increased by 5-7 per cent in the third quarter of 2022 (July-September), said leading real estate consulting firm CBRE South Asia in a report on Thursday.

The report examines the current market landscape and deliberates on factors influencing cost trends across key asset classes.

Labour costs increased by 8-10 per cent and reinforcement steel prices by about 20 per cent year-on-year during Q3 2022.

Looking ahead, the CBRE report said 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," it said.

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.

CBRE report forecasts a marginal rise in the overall construction costs during 2023 across cities, with Mumbai likely to witness a sharper rise. Fuel price volatility may also impact the overall input costs in 2023.

"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," said Anshuman Magazine, Chairman and CEO - India, South-East Asia, Middle East and Africa of CBRE.

According to Gurjot Bhatia, Managing Director, Project Management - India, SE Asia, Middle East, and Africa: "As the cost of major materials such as cement and steel has declined quarter-on-quarter and a gradual improvement in supply chain bottlenecks was witnessed during Q3 2022, construction cost has stabilised across asset classes and cities."

Despite headwinds, construction demand is expected to remain strong in the near term, Bhatia said, adding that considerable pent-up demand for new construction should largely sustain the marginal increase in the cost of construction.

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