The ongoing geopolitical crisis in West Asia is beginning to exert significant pressure on the Indian real estate sector, particularly concerning construction costs. Early indicators of this trend are already evident across various materials linked to construction, such as steel, logistics, and petrochemicals. According to industry expert Neotia, if these pressures persist, construction costs could increase considerably over the next one to two quarters. This rise in expenses is likely to influence pricing strategies in the sector moving forward, creating a ripple effect that may affect the overall market.
In addition to immediate cost increases, the potential for delays in construction schedules looms large, especially if the conflict continues into the coming months. Sushil Mohta, President of CREDAI West Bengal and Chairman of Merlin Group, has voiced concerns that an extended war could lead to a 5 percent increase in construction costs and disrupt the supply chain of essential building materials. Such disruptions could have broader implications, dampening economic growth and leading to sluggish sales and leasing activity in the real estate market. As construction steel prices have already surged—reportedly rising by 20 percent in some markets—the impact of these changes is becoming increasingly tangible.
The rise in construction costs is not limited to steel; the construction industry is also grappling with rising input costs in energy and cement. While cement prices have remained relatively stable, the demand for this essential material is increasing, evidenced by a significant growth in production figures. Mahesh Agarwal, Managing Director of Purti Realty, noted that while his company has not yet adjusted prices, they are monitoring developments closely. Their focus remains on maintaining price stability and transparency for customers amid these fluctuating costs.
The rating agency ICRA has highlighted that geopolitical tensions are likely to weigh heavily on the operating margins of construction companies, projecting a decline from previous years. Despite these challenges, ICRA anticipates a recovery in revenue growth, supported by initiatives such as the Jal Jeevan Mission and improvements in road project awards. However, companies with exposure to West Asia might experience execution pressures due to ongoing geopolitical challenges. Diversified Engineering, Procurement, and Construction (EPC) companies are expected to navigate these conditions more effectively than road-focused entities, suggesting a shifting landscape in the competitive dynamics of the Indian real estate sector. As the situation develops, stakeholders will need to adapt strategically to mitigate risks and capitalize on emerging opportunities in this evolving market environment.