The latest data from the TruBoard Real Estate Construction Cost Index reveals that developers are experiencing relatively mild cost pressures in the real estate sector. In the quarter ending December 2023, the index rose by 0.7% compared to the same period a year earlier, indicating a slightly higher increase than the 0.3% uptick observed in the previous quarter. However, the index remained unchanged compared to the preceding quarter. Even though some sectors experienced significant price hikes, such as metal casting, granite, white cement, and asbestos, the overall trend shows restrained cost movements.
Steady Increase in Construction Costs
Analyzing the broader trend, the TruBoard Real Estate Construction Cost Index reports an average increase of 5% in construction costs for the fiscal year 2023 when compared to the previous fiscal year (FY22). This data indicates that the real estate market has shown resilience in the face of challenges such as fluctuating interest rates and potential inflation threats. Developers can take advantage of controlled costs, creating favorable conditions for their projects. Sangram Baviskar, Managing Director of Real Estate Solutions at TruBoard Partners, comments on the findings saying, “Our latest analysis reveals a resilient real estate market, defying challenges such as fluctuating interest rates and inflation threats. Our index demonstrates controlled costs, promising favorable conditions for developers. The upcoming quarters would be interesting as we monitor the dynamic interplay of construction costs and sales.”
Global Commodity Inflation and Uncertain Trends
Anuj Agarwal, Chief Economist and Head of Research at TruBoard Partners, highlights the impact of global commodity inflation on construction costs. The World Bank’s recent data suggests a notable uptick in global prices for essential metals during Q3FY24 compared to the previous year. Specifically, iron ore prices have surged by 30% year-on-year and 12% quarter-on-quarter, aligning with the upward trend seen in the materials component of the construction cost index. However, uncertainties in the market persist. Conflicts such as the Russia-Ukraine war and the Israel-Hamas conflict continue to cast ambiguity and volatility on commodity prices. Additionally, the potential implementation of rate cuts by central banks in the coming year may drive capital inflows into commodity assets, further altering pricing dynamics. Despite these factors, TruBoard Partners anticipates relatively moderate growth in construction costs over the next six months, remaining within a range of less than 5%. In conclusion, the TruBoard Real Estate Construction Cost Index indicates that developers are facing mild cost pressures, with the index rising by 0.7% in the quarter ending December 2023. The broader trend shows an average 5% increase in construction costs for FY23 compared to FY22. While commodity inflation and geopolitical conflicts pose challenges, controlled costs provide developers with promising conditions. Monitoring the dynamic interplay between construction costs and sales will be vital in the upcoming quarters.
