- Real estate margins may shrink by 5% due to a 10-15% rise in construction costs
- Tile production halt in Morbi has caused a 20% surge in tile prices
- Steel and aluminium prices have increased by 9% and 4% respectively since March
India's real estate sector is staring at an immediate margin squeeze due to a sharp rise in construction costs, coupled with supply chain disruptions, which is beginning to take its toll. According to industry sources and developers, margins could be hit by as much as 5% in the near term, with overall construction costs already rising by 10-15%.
At the heart of the issue is a combination of raw-material inflation and supply-side disruptions.
One of the most immediate triggers has been the halt in tile manufacturing in Gujarat's Morbi, which is India's largest ceramic hub. Production has been stalled for the past five days, leading to a sharp supply crunch. As a result, tile prices have surged by nearly 20%, adding to the cost burden for ongoing projects, said Gummi Ram Reddy, chairman and managing director of Ark Group and president-elect of CREDAI National.
Simultaneously, key construction inputs such as steel and aluminium have witnessed notable price increases. Since March, aluminium prices have risen by around 4%, while steel prices are up by nearly 9%. These materials form a significant portion of construction costs, particularly in high-rise and urban developments.
Fuel costs have further compounded the pressure. Crude oil prices have surged by approximately 48% since the start of March, driven by geopolitical tensions in the Middle East. This has had a cascading impact on transportation and logistics costs, pushing freight rates higher and increasing the cost of moving construction materials across the country.
Additionally, a large portion of the textile and chemical inputs used in construction, including insulation, fittings, and synthetic materials are derived from petroleum products, making them vulnerable to crude-linked price volatility.
ALSO READ: Iran Vows To 'Completely Close' Strait Of Hormuz If US Targets Power Plants
Keval Valambhia, chief operating office at CREDAI-MCHI, said they have so far absorbed the rising costs to avoid disrupting sales momentum, especially in a market that remains price-sensitive. However, this strategy may not be sustainable and will inevitably affect project viability.
With uncertainty around supply chains and input availability, developers are also evaluating contractual safeguards. If disruptions continue for an extended period, they may consider invoking force majeure clauses in their agreements, Valambhia noted.
Such a move would allow developers to seek relief from penalties related to project delays, particularly in cases where construction timelines are impacted by factors beyond their control.
In parallel, the industry is preparing to approach the government and regulatory authorities for support. One of the key demands is likely to be relaxation in project delivery timelines, especially under regulatory frameworks such as RERA, where delays can attract penalties and impact developer credibility.
Developers are contemplating to seek policy-level interventions to cushion the impact of rising costs. This could include temporary relief measures, faster approvals, or flexibility in compliance timelines, Reddy added.
For now, most developers have refrained from passing on the cost increases to buyers. However, industry experts warn that if the current situation persists beyond a quarter, price hikes may become inevitable.
“The ability to absorb costs is limited. If input prices remain elevated for a sustained period, developers will have no option but to recalibrate pricing and pass it on to the customers,” said Chintan Vasani, partner at Wisebiz Developers.
This could potentially impact housing demand, especially in the mid-income and affordable segments, where buyers are highly sensitive to price changes, he explained.
The real estate sector's near-term outlook will largely depend on how quickly supply chains stabilise and whether commodity prices ease. A prolonged disruption could not only erode margins but also delay project completions.
For now, developers are in a wait-and-watch mode — absorbing shocks, seeking government support, and hoping that the current volatility proves to be short-lived rather than structural.
ALSO READ: No Room For Hoarding: PM Modi Directs Whole-Of-Govt Push To Secure Food, Fuel Supplies
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
