India’s Construction Boom

After agriculture, India’s construction industry is the second largest employment, accounting for 13% of global GDP. According to a McKinsey analysis, by 2030, 40% of India’s population (590 million) will be living in cities. Until 2030, 700-900 million sqm of urban space must be built each year, equivalent to a new Chicago-sized space per year.

While real change through the deployment of alternative construction technology and practices may take time, the epidemic is likely to hasten the process. This is due to the fact that the building industry has been disrupted, which has impacted a number of stakeholders. The need to realign strategy, business models, and operating models grew as a result.

According to a CBRE survey on India’s construction cost trends, the industry is likely to see more investment in technology-oriented construction, such as prefabricated and modularized components, digitisation of products and processes through BIM (Building Information Modeling) modules, automation in off-site production and on-site assembly, and so on.

Although these technologies are expected to increase construction capex, they have the potential to offset labor costs and shorten construction timetables. Due to a spike in global steel prices, a lack in domestic supply of iron ore, and an increase in domestic demand for steel, reinforcement steel prices in India have risen by roughly 8% to 10% in the last 3-4 months. Cement prices rose 4-5 percent year on year in Q4 2020 across all major Indian cities, owing to rising fuel costs. The Covid-19-induced lockdown resulted in a massive shift of labor from India’s cities to small villages and rural areas. Labor expenditures, which account for 30-35 percent of total building costs, are expected to rise 5-10 percent.

Because labor and building materials are the two most important components in any real estate project, increases in material costs as a result of the pandemic’s supply chain disruption have had a cascading effect on overall project costs.

All of this has had a cascade effect, fueling the need to realign strategy, business structures, and operating methods.As a result, numerous initiatives were taken in response to the industry transformation in order to navigate in the new normal during 2020. The emphasis on general contractor (GC) responsibilities, the addition of a preliminary section, the inclusion of pandemic-related clauses in the agreement, changes to design guidelines in terms of occupancy levels for common areas and meeting rooms, and rapid technology adoption for design and construction are among the changes specified.