Costs for construction projects experienced a moderate increase in 2024

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2025 August 30 . 11:50 AM

2 min read

Increase in construction expenses observed in 2024

Costs for construction projects experienced a moderate increase in 2024

In 2024, a 5% increase in labor expenditures was observed due to persistent labor shortages, leading to a rise in construction costs for greenfield projects in Chennai. However, this escalation was moderate, ranging between 2-4%, compared to the previous year. This was an anomaly given the significant drops in prices for cement, steel, and aluminum, among other materials, that year.

The rise in construction costs can be attributed to several factors. Firstly, Chennai's rapid infrastructure growth, with projects like the Chennai Metro Rail Phase II and road expansions, has led to increased demand for labor, materials, and higher operational costs.

Secondly, the Indian government's focus on infrastructure development, such as the National Infrastructure Pipeline and Gati Shakti's GIS platform, has resulted in an increase in large-scale projects. While these initiatives aim to streamline processes, they can also impose additional regulatory costs and complexities for projects.

Thirdly, the surge in demand for urban housing and commercial spaces in Tier-1 cities like Chennai contributes to higher construction costs. This demand leads to increased competition for resources, which can drive up costs even if basic material prices decrease.

Fourthly, the adoption of green building practices and environmental regulations can increase costs due to the need for specialized materials and processes that meet these standards.

Lastly, labor costs might have increased due to skill shortages or higher wages in projects requiring specialized skills, such as those in the construction of complex infrastructure.

While specific data on Chennai's labor market dynamics in 2024 is not provided, these factors generally contribute to the moderate escalation in construction costs for greenfield projects in the region.

Interestingly, the southern region witnessed the sharpest fall in cement prices in 2024. Despite this, Chennai, along with Delhi-NCR, Bengaluru, Hyderabad, and Pune, recorded a 3-4% growth in construction costs. Steel prices also decreased by 3 to 5%, while paint costs remained stable. However, the cost of wood rose by 3-6%, and labor costs effectively negated material cost reductions in 2024.

The moderation in cost escalation in 2024 was due to the easing of supply chain bottlenecks and stabilizing of inflationary pressures. Mumbai experienced a 4-6% increase in construction costs in 2024, while aluminium prices saw a decline of up to 2%.

In FY25, cement prices witnessed the sharpest price fall in almost two decades, offering a potential relief for the construction sector in the coming year. The decline in domestic steel prices in 2024 was due to increased supply from imports and a softening global steel market, which could continue to influence prices in the near future.

In conclusion, while material prices dropped significantly in 2024, labor costs and other factors contributed to a moderate increase in construction costs for greenfield projects in Chennai. Understanding these factors can help stakeholders better manage costs and mitigate risks in future projects.