Elevated construction costs may put pressure on developers' margins

Rising construction costs, supply disruptions, and labour pressures are squeezing developers' margins, even as demand resilience and tech-led efficiencies help cushion the impact

An estimated 3-5 per cent rise in construction costs across India is expected to pressure real estate developers’ margins.

 

According to JLL, construction costs across asset classes are projected to increase in 2026, driven by regulatory changes, skilled labour scarcity, and stricter environmental standards.

 

Global supply disruptions are adding another layer of uncertainty.

 

The Strait of Hormuz blockade since early March 2026 has hit the sector hard with exploding material costs, supply delays, and potentially delayed or stalled projects. Industry executives say the impact remains manageable and is unlikely to show up in immediate price hikes.

 

“The immediate impact will be pressure on margins, pushing developers to focus more on cost control and execution. They will need to streamline designs, speed up project timelines, and be more disciplined in how they allocate capital,” said Sujay Kalele, founder and managing director (MD) of TRU Realty.

 

The government’s goods and services tax (GST) 2.0 reform has offered partial relief.

 

Cement prices have softened after the reform delivered 10 per cent tax relief, translating into savings of 2–3 per cent for developers and 1–1.5 per cent for homebuyers. This has cushioned the overall cost escalation.

 

Industry executives said the increase is manageable but structurally significant.

 

The projected cost rise is likely to accelerate consolidation among organised developers and push the industry further towards technology-led execution and disciplined capital allocation.

 

“These challenges underscore the evolving sophistication of the Indian construction ecosystem. Developers are no longer passive recipients of external shocks. Instead, they proactively recalibrate sourcing strategies, leverage technology to drive efficiencies, and enforce prudent cost controls to uphold project viability without compromising timelines,” said Niranjan Hiranandani, chairman, National Real Estate Development Council (Naredco).

 

This comes amid moderating sales across the top residential markets of India. Housing sales in seven major cities in 2025 declined 14 per cent year-on-year (Y-o-Y). This is due to hardening property prices, layoffs in the information technology (IT) sector and geopolitical tensions, according to Anarock.

 

Average residential price growth moderated from double digits in previous years to single digits in 2025.

 

Average prices rose 8 per cent over the year, climbing from ₹8,590 per square feet in late 2024 to approximately ₹9,260 by the end of 2025.

 

Developers indicated that the immediate pass-through to homebuyers may remain limited.

 

Vivek Mohanani, chief executive officer (CEO) and MD, Ekta World, said developers are likely to absorb the increase initially, depending on sales velocity.

 

Strong interest from non-resident Indians (NRIs) in markets such as Mumbai, Gurugram and Pune could help maintain demand momentum and support absorption of input cost pressures, he added.

 

Similarly, Vikas Bhasin, MD, Saya Group, said the projected increase reflects a healthy demand environment and is “well within manageable limits.”

 

He added that improved planning efficiencies and technology-led execution are enabling developers to absorb part of the increase without significantly affecting project viability.

 

Ankur Jalan, CEO of Golden Growth Fund, said premium housing markets may see selective pricing recalibration but are expected to absorb incremental cost increases over the medium term.

 

Umesh Gowda HA, chairman and founder of Sanjeevini Group, said developers are focusing on cost optimisation rather than passing on increases to buyers. This comes even as rising input costs linked to global tensions begin to reflect on project budgets.

 

Ashok VS, head of cost management at JLL PDS India, said digital technologies are helping offset these pressures by improving efficiency and delivering greater project value.

 

“Despite rising global construction costs and market uncertainty, significant opportunities are emerging. The sector's shift towards sustainability, digital transformation, and adaptive practices creates a strong rationale for strategic investment.”