Despite the rising construction costs, the overall stock of developed real estate in India’s urban centres will touch 8.2 billion sq ft by 2025 and the contribution of real estate sector to India’s GDP will be around 13 percent, a report has said.
The report also notes that the implementation of the GST has stabilised the cost of raw materials and streamlined inter-state and import tax, giving the industry a major boost.
According to the report titled India Real Estate – Variance in Construction Costs, among Chennai, Bengaluru, Hyderabad, Pune, Mumbai and Delhi, Mumbai remains the most expensive.
While the average cost of construction for a residential apartment in a mid-rise building was pegged at Rs 3,125 per sq ft in Mumbai, the price was found to be Rs 2,750 per sq ft in Delhi and Pune. In Chennai and Bengaluru, the cost was Rs 2,500 per sq ft, while in Hyderabad such an apartment would cost Rs 2,375 per sq ft, the report says.
Prices of cement have nearly tripled in the past 16 years while the cost of structural steel more than doubled between April 2005 and November 2017. Despite this, the overall stock of developed real estate in India’s leading urban centres will reach 8.2 billion sq ft by 2025 and provide employment to approximately 17 million people across the country, it said.
Construction costs in Chennai and Bengaluru are almost at par, as are those in Delhi and Pune. The variation in construction costs could be primarily attributed to different demand levels, proximity to supply centres as well as the efficiency of logistics networks across these cities. Moreover, engineering costs too vary in accordance to the region, the report says.
“Rising demand for real estate as well as infrastructure development is expected to propel the construction industry towards a growth trajectory. Already, the implementation of the GST has impacted the cost of raw materials and streamlined inter-state and import taxes, giving the industry a major boost.” Anshuman Magazine, Chairman, India and South East Asia, CBRE, said.
“The construction sector is one of the largest employment generators and has strong linkages with various industries. We foresee strong growth for the sector over the next five years, owing to a thrust from the real estate and infrastructure sectors,” says Gurjot Bhatia, managing director-project management at CBRE South Asia.
The implementation of the Goods and Services Tax (GST) has come as a breather for the real estate industry. Aimed at introducing countrywide uniform taxation, GST has enabled builders to source materials from only registered suppliers in a transparent manner. To assess the impact of GST on construction costs, CBRE compared pre-GST taxation rates with the current system. While the impact on taxation on various works components was found to be varied, GST seems to have managed to scale down the overall construction costs to a certain extent.
The report also highlights certain challenges that the sector has been facing. One of the challenges that the industry needs to overcome is the shortage of quality contractors who can complete projects within stipulated time periods. This is likely to provide an opportunity for the entry of international players to plug in this gap.