According to JLL's recently released Construction Cost Guide, India - 2026, construction costs across various real estate asset classes are anticipated to increase by 3-5% in the upcoming year. This projected rise is largely attributed to escalating input costs, particularly in labor, which is expected to climb by 5-12% due to the implementation of a new labor code that took effect in November 2025. The changes mandated by this code include enhanced social security benefits and standardized wage frameworks, which aim to address the existing skilled labor shortages and the growing demand for infrastructure development.
The material costs observed in 2025 presented a mixed landscape, with certain categories displaying divergent trends. While the prices of cement, steel, and diesel saw slight reductions of 1-2%, 3-4%, and 5-6% respectively, other essential materials such as aluminum and copper faced notable hikes, increasing by 8-9% and 9-10%. These fluctuations in material costs can be attributed to global demand pressures and ongoing supply chain disruptions. Despite the government's GST 2.0 initiative, which offers a critical 10% tax relief on cement, the overall construction costs are still projected to experience a substantial rise, impacting project economics and potentially homebuyer prices.
As these economic factors unfold, the construction industry is adapting by strategically focusing on long-term value creation while navigating regulatory changes and market dynamics. The implications of these rising costs are already evident across India's major urban centers. For instance, luxury high-rise projects in Mumbai are commanding prices between ₹4,600-5,200 per square foot, while cities like Chennai, Bengaluru, and Hyderabad are offering competitive rates ranging from ₹4,200 to ₹4,800 per square foot. This variance is not merely a reflection of cost differentials; it is reshaping capital allocation strategies and propelling the expansion of Tier-II cities, thereby redefining the geographical landscape of India's real estate market.
Industry experts emphasize the emerging opportunities amid rising costs and market uncertainties. Aditya Desai, Executive Director at JLL PDS, highlighted the importance of vigilance and proactive adaptation in seizing these opportunities. Meanwhile, Ashok VS, Head of Cost Management at JLL PDS, pointed out that while regulatory changes and labor scarcity are exerting upward pressure on construction costs, advancements in digital technologies are helping to mitigate these challenges by enhancing efficiency and project value. Overall, despite the complexities of rising construction costs, significant potential for growth and innovation remains within the real estate sector.