The ongoing conflict in West Asia is starting to impact the Indian real estate sector significantly, leading to rising construction costs that could increase by as much as 5% in the near term. Industry experts warn that if the hostilities persist, the pressure on material prices will not only affect construction expenses but also disrupt project timelines due to shortages of essential resources. As the situation unfolds, construction companies are bracing for a challenging period ahead.
Harshavardhan Neotia, Chairman of Ambuja Neotia Group, highlighted the emergence of a 'cost-push cycle' resulting from escalating crude oil prices, which have surged from approximately USD 70 per barrel in February to between USD 110 and USD 120 in March. The price hikes extend beyond oil, with natural gas and essential construction materials such as steel and petrochemicals also witnessing significant increases. Neotia noted that if these trends continue, construction costs could see a substantial rise in the upcoming quarters, which would inevitably influence pricing strategies within the sector.
Sushil Mohta, President of CREDAI West Bengal and Chairman of Merlin Group, echoed Neotia's concerns, warning that a prolonged conflict could lead to immediate cost increases and disrupt construction schedules. He pointed out that building materials are becoming scarce, which could further exacerbate the situation. Mohta also raised alarms about the broader economic implications, stating that a continued crisis might slow down overall economic growth in India, affecting the real estate market's sales and leasing activities alongside rising costs.
On the ground, the volatility in the market is already apparent, particularly in the steel sector, where prices of TMT steel have surged by approximately 20% in some regions, rising from Rs 62,000 to Rs 72,000 per tonne within a month. This trend reflects a broader increase of 18-25% in steel prices over the last few months. Cement prices, while more stable with movements reported between 0-5%, may also face upward pressure due to increasing demand, as evidenced by a 10.7% growth in cement production in January 2026. Companies like Purti Realty are currently monitoring these developments closely, with Managing Director Mahesh Agarwal indicating that while they have not yet adjusted their pricing, the rising costs of energy, steel, and cement pose significant challenges. Furthermore, rating agency ICRA has flagged geopolitical tensions in West Asia as a major factor impacting bitumen prices, which are crucial for construction profitability. ICRA forecasts that operating margins for construction companies could decline sharply, with expectations of margins between 10.1-10.8% in the coming fiscal years, down from the 13-14% range seen in FY2020-21. Despite these challenges, there is an anticipated recovery in revenue growth, projected at 6-8% in FY2026-27, which may provide a silver lining in an otherwise tumultuous period for the construction sector.