·        Hyderabad and Chennai have the lowest average construction costs

·        The cost of construction is highest in Mumbai which is on average 10% higher than other metros, across asset classes

·        5-6% cost increase in greenfield & interior fit-out projects due COVID-19

·        The higher costs in Mumbai are largely attributable to corresponding higher prices of key construction materials like cement, reinforcement steel, structural steel, stones and like

Mumbai: Chennai and Hyderabad are at the lower ends of the cost spectrum against which the cost of Mumbai is 14% higher. Taking into account the other metros like Bangalore, Pune, Delhi, the overall average cost increase in Mumbai is 10%, according to an analysis guidebook ‘Construction Cost Guide Book’ launched by JLL today. The higher costs in Mumbai are largely attributable to corresponding higher prices of key construction materials like cement, reinforcement steel, structural steel, stones and so on. The guidebook throws light on the market trends, construction cost of real estate assets across major markets of India and includes a cost matrix representing different style and quality levels, an analysis of market trends of the major building materials.

Hyderabad and Chennai have the lowest average construction costs where costs are about 14% lesser than Mumbai. The impact of COVID-19 on market benchmark rates has been neutral to significant, depending on the asset classes. Based on our analysis we have seen cost impact of 5-6% on existing green field & interior fit-out projects.

“Going ahead, we see cost as one of the key drivers in real estate decisions. Many firms today are relooking at their real estate choices to optimise spend. While the true impact of pandemic on construction costs is still being discussed and debated, the general trend is obvious – construction costs is on the rise. Customer spends are going to be more directed towards aspects that give a better employee experience. Understanding and managing costs are key to keeping budgets under control and delivering an economic and quality product,” said MV Harish, Managing Director, PDS, JLL India.

Average cost of constructing a residential apartment in a high- rise and mid-rise building in key cities – The average cost of construction for a luxury residential apartment in a high-rise building in Mumbai is INR 5,625 per sq. ft, while in Delhi & Pune, the price would be 4,950/sq. ft and 4,905 respectively, while in Hyderabad such a house would command INR 4,275/sq. ft. Similarly, constructing a mid-rise luxury apartment will cost INR 3,875/ sq. ft in Mumbai and INR 3,410/ sq. ft in Delhi.

Average cost of constructing a commercial building in a high- rise and medium-rise building in key cities – While constructing a medium-rise commercial building in Mumbai would cost INR 3,250/sq. ft, the price would be INR 2860/sq. ft in Delhi and INR 2470/sq. ft in Hyderabad for constructing similar property. Construction cost for a medium-rise commercial building in Delhi and Pune are almost at the same level.

Similarly, construction cost for a high-rise commercial building in Mumbai is INR 3,875/sq. ft, while it is INR 3,410/sq. ft and INR 3,379/sq. ft in Delhi and Pune. The cost of constructing a high-rise commercial property in Hyderabad is the lowest i.e. INR 2,945/sq. ft.

Impact of COVID 19 on construction cost

The impact of COVID-19 on market benchmark rates has been neutral to significant, depending on the asset classes. There has been significant cost impact of 5-6% on existing green field & interior fit-out projects which is primarily driven by procurement challenges which may have led vendors to procure from first available source at higher price, increased cost towards Health & safety (setting up of quarantine facility, sanitation, thermal scanners and like), skilled labor availability. The major impact has been on services especially long lead imported items where there are limited local sourcing of materials. The cost impact ranges from 2-3% for new projects that are undertaken in recent times. There are few challenges like idleness of plant and machinery along with enormous market competition which are compelling contractors to discount their margin as they bid for new projects. 

Factors Impacting Construction Cost

• Material and transportation cost have spiked due to material demand, its nonavailability and transportation challenges; once the supply chain reinstates, the prices shall return to normal
• Additional costs are incurred to follow COVID-19 HSE protocols at work and labor camps
• Contractors are reducing the profit margin, plant and machinery cost due to prolonged idleness and competition in the market
• However, the overall delta would be 2-3% for new projects and 5-6% for existing projects as material and transportation caters to 50-60% of the total cost
• With right procurement strategy, the client could take the benefit of idleness and market competition to avail few percentages in discount from the existing prices.

The procurement strategies are evolving as clients increase their focus on time and quality. While the item rate contract remains the primary contracting model in the country, the design & build model is gaining prominence.