Indian Construction Costs A Biannual Review - July 2020 - Gleeds
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Indian Construction Costs - A Biannual Review - July 2020 Indian Construction Costs A Biannual Review July 2020 July 2020 1
Indian Construction Costs - A Biannual Review - July 2020 Note from the Managing Director The construction industry in India had benefitted from sustained growth in 2018 and 2019. Growth forecasts were equally good for 2020 and beyond, however, the onset and spread of the Covid-19, declared as a pandemic in January 2020, has forced all industries to rebalance themselves to remain commercially viable in the new evolving world. It is, however, important to reflect on what the industry looked like and analyse the way forward in the given situation. Distorted material supply, the reorganising of supply chains and the migrant labour exodus who will eventually return to construction sites post-monsoon / festive seasons have an impact on costs of construction as we know it. Newer technologies such as virtual construction, virtual reality, IoT sensors, prefabrication, touch-free controls are expected to take major strides in the near future. To cast more light on the industry trends, I am delighted to introduce a new biannual publication of Gleeds India which provides real estate professionals a catalogue for mapping Indian construction costs. This publication walks the reader through the overview of the Indian economy, insights on pre-Covid-19 material and labour cost trends and Gleeds’ insights on the various construction sectors’ cost outlook. There is also a reflection on the current market trends of the sectors and where they are likely to be post the Covid-19 situation. Whilst the change as a consequence of the pandemic is global, the ‘constant’ change for Gleeds India has been the zeal to upskill our knowledge base and assist in upscaling the industry. The full impact of Covid-19 on projects, design and cost are yet to be fully established. However, Gleeds India will be closely monitoring its effect on all aspects of the construction cost, time and process in the months to come which would allow our clients to make informed decisions. I sincerely hope that this publication will be insightful and adds value to your outlook of the industry in the present times. Ben Huskisson, MRICS. Managing Director July 2020 2
Indian Construction Costs - A Biannual Review - July 2020 Contents 04 Economic Outlook 20 H1 2020 Construction Costs: Sector wise 08 Key Price Trends 24 City Cost Indices 11 Material Prices 26 Industry Transformation 13 Labour Rate Trends 28 Look Ahead 16 Construction Sector Outlook 30 References July 2020 3
Indian Construction Costs - A Biannual Review - July 2020 Economic Outlook The Den Hotel, Bangalore July 2020 4
Indian Construction Costs - A Biannual Review - July 2020 Summary of the Indian Economic Outlook The Indian economy no different to the global economy of labour has influenced the anticipation of return of has been in a turmoil as a consequence of the Covid-19 normalcy to only be in Q1 2021. outbreak, declared by the WHO on the 30th of January 2020 as a global emergency. Like other countries, India’s The IMF in mid-April predicted that the growth rate is likely economy also depends on the control of the pandemic to bounce back to 7.4% in 2021, if the virus is contained. spread. This is quite positive as India is one of the few economies that show expansion despite the pandemic avalanche. As a result of the pandemic, uncertainty clouds forecasts, however, the global economy is projected to contract The employment rate estimates by Centre for Monitoring sharply by –3 percent in 2020, much worse than Indian Economy (CMIE) show that unemployment shot during the 2008–09 financial crisis as reported by the up to 24% for the week ending on the 17th of May 2020 International Monetary Fund. which then rapidly fell to an average 11.1% in the last week of June 2020, following the ease of lockdown In India, there are various constraints faced by businesses regulations. today. The lockdown and the complete close of business for a month, for some cities even more, the drop in India’s economy is on its path to recovery, with small and demand, disruption in the supply chain, a credit crunch, medium scale businesses, construction sites, travel and non-availability of access to raw materials and movement restaurants all slowly recommencing. Taj Vivanta - Yeshwantpur, Bangalore July 2020 5
Indian Construction Costs - A Biannual Review - July 2020 H1 2020 Economic Overview GDP Projections Y2020 4.20% 4% The lockdown implemented from the end of March into logistics, facility management, finance, insurance, and May 2020, weighed the Indian economy down. The 1.90% manufacturing sector given the increase in demand Government has tried to ease out on small businesses following the COVID-19. 1.00% 0.80% with the aim to lighten the weight on the economy, however the adverse effect of the lockdown is yet Informal labour, however, are0.20% seen to commence work -0.40% unknown. IMF immediately World Bank ADB post Fitch the lift SBI in regulations, Moody's UBS being mostly daily wage workers. Gross Domestic Product (GDP) Unemployment Rate 30% 24.95 25.79 23.52 23.48 25% GDP in the year 2019 was 4.2% and in the given 20% 22.89 22.48 12.38 circumstances dropping as per the predictions of 9.41 11.13 15% 9.7 8.65 8.75 global economists demonstrated in the graph below. 9.02 7.6 7.22 7.76 10% 10.56 5% 8.44 GDP Projections Y2020 6.93 6.06 7.34 0% 4.20% Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 4% Rural Unemplyment Rate Urban Unemployment Rate India Source: CMIE 1.90% Reported as on 28th June 2020. 1.00% 0.80% 0.20% -0.40% Inflation IMF World Bank ADB Fitch SBI Moody's UBS The inflation rates in India have once again fluctuated with the Covid-19 crisis. It averaged 5.98 percent from 2012 until 2019, reaching an all-time high of 12.17 Unemployment Rate percent in November of 2013 and a record low of 1.54 Unemployment 30% 24.95 25.79 percent in June of 2017. The growth was estimated to 23.52 23.48 25% be steady from 2020 as noted below, until the outbreak, the projected rate of inflation for the year 2020 is 20% 22.89 The rate of unemployment had increased to 23.48% 9.41 22.48 estimated 12.38to be 3.34%: 15% as reported by in May 2020 9.7the 8.65 Centre for Monitoring 8.75 11.13 9.02 Inflation rate year on year Indian Economy. This 7.22 over7.76 7.6 reduced June once there 10% 12% was an ease in the lockdown regulations, falling to 10.56 8.44 10% 17.2% in the 5% first week of June and then 11.1% 6.93 6.06 7.34 end of June 2020. 8% 0% Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 6% Jun-20 The job market does look grim this year. The 4% corporates areRural notUnemplyment Rate sure what the Urbanand future holds Unemployment are Rate India 2% rationalising their sector. There is a reported optimism that job seekers may find relief towards the end of 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 this year, with medium and small size enterprises Source: Statista hiring. There also may be better opportunities in the Note: As per the source, year 2020 and 2021 are estimates. July 2020 6 Inflation in % WPI and CPI 12 10
4% 2% Indian Construction Costs - A Biannual Review - July 2020 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 WPI and CPI Both wholesale price index (WPI) and Inflation in % WPI and CPI the consumer price index (CPI) are 12 the change in the price of various goods or services in the economy, 10 where the wholesale price index 8 measures the percentage change in 6 the price in wholesale index, while 4 consumer price index measures the 2 percentage change in the price in retail market and hence it is more 0 useful for consumers rather than -2 businessman. -4 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019 2019-2020 Provsional The graph demonstrates the inflation WPI (in %) CPI (in %) for wholesale price index and consumer price index as noted by the Source: India Budget Economic Survey Report, Indian Government. Also noted, the The Government of India, Ministry of Finance 2019-2020 is provisional. $ USD to INR Average USD to INR 80 74.12 75 70.39 The graph is a trends graphs USD 68.4 70 67.17 to INR, averaged. The Rupee in April 64.12 65.1 2020 showed an all-time low of about 65 61 USD to INR 77 a Dollar, and was predicted to 60 reach a high of 80 end of June 2020, 55 however, it closed at 75.53 a dollar on the 30th of June 2020, to average to 50 about 74.12 a Dollar for the first half 45 of the year. 40 Y2014 Y2015 Y2016 Y2017 Y2018 Y2019 Y2020 Source: XE Currency Charts as on the 29th of June 2020. Marks & Spencer July 2020 7
Indian Construction Costs - A Biannual Review - July 2020 Key Price Trends The price trends for the most used material in the industry are set to change as a result of the effect of the Covid-19 pandemic. Prior to March 2020 of commonly used construction material price trends are demonstrated below: Steel Prices in Major Cities: AVERAGE STEEL PRICE IN INR / YEAR 4,00,000 3,50,000 56,850 3,00,000 51,595 49,475 49,025 2,50,000 45,200 57,525 41,000 52,200 49,475 39,500 49,375 2,00,000 45,750 56,650 40,975 50,445 50,875 39,425 49,553 1,50,000 45,375 43,275 38,400 56,950 49,475 49,700 52,700 45,250 1,00,000 41,200 39,500 55,825 50,230 53,799 50,000 44,875 40,375 40,700 50,000 49,425 42,025 38,400 45,375 56,650 49,753 53,312 - 2014 2015 2016 2017 2018 2019 2020 Sources: Sail. Note: All year prices are averaged and in INR, and Sail have last updated rates in June 2020. All prices include GST. As reported by the Economic Times, cement and steel sector output declined by 86% and 83% respectively in April 2020. Diesel Prices In Major Cities: AVERAGE PRICE IN INR / YEAR 450.00 400.00 73.18 72.32 72.05 350.00 60.53 61.86 300.00 57.84 68.04 68.58 68.21 60.22 53.12 250.00 55.35 57.38 51.55 69.87 68.50 68.38 200.00 62.74 59.51 57.24 53.64 70.38 70.13 69.32 150.00 59.24 54.55 59.23 50.01 100.00 55.56 66.57 66.44 68.66 47.79 53.24 57.12 50.00 63.71 54.56 59.02 59.92 70.64 69.63 69.10 0.00 2014 2015 2016 2017 2018 2019 2020 Mumbai (Rs./Ltr) Delhi (Rs./Ltr) Chennai (Rs./Ltr) Pune (Rs./Ltr) Banglore (Rs./Ltr) Hyderabad (Rs./Ltr) Source: My petrol price. Average price per year considered. For the year 2020 average price up until the 29th of June considered. July 2020 9
Indian Construction Costs - A Biannual Review - July 2020 Price Trend Indices for Cement: Average Rate Excl Tax The graph shows a price trend for 260 255 cement prices in Mumbai. In 2019, 255 even with the rise in demand, cement 250 247 prices hiked and is said to have 245 240 achieved it highest production level, 235 231 with capacity utilisation of 78%. 230 225 224 225 220 215 210 205 2015 2016 2017 2018 2019 Source: Gleeds Internal Data (Mumbai). Prices are in INR and exclude GST. Note: Price does not account for the impact of the Covid-19. Aluminium and Copper: 7000 6663.87 6549.00 6209.25 6054.13 The consumption of Aluminium 6000 5413.75 5250.25 and Copper is muted following the 5010.38 5000 lockdown and the drop in demand and the full benefit of the drop in 4000 prices has been of no advantage for the industry. 3000 2050.00 2022.13 1823.00 2000 1630.50 1619.38 1797.63 1492.37 1000 Copper (USD)/Tonne Aluminium (USD)/Tonne 0 Y 2014 Y 2015 Y 2016 Y 2017 Y 2018 Y 2019 Y 2020 Source: London metal exchange Prices noted are in USD and are averaged for the year and for year 2020 averaged up until the 29th of June. Crude Oil: CRUDE OIL (USD/BARREL) Crude oil impacts inflation largely 100.00 because of the manufacturing of raw 93.67 materials depends on it. Though ideally 90.00 construction materials like cement, 80.00 paints, glass, plastics, PVC pipes and 70.00 65.13 rubber prices move in tandem with the 60.00 67.75 price of crude oil, other factors like, the 50.00 53.73 present drop in demand, disruption of 50.39 49.54 40.00 supply of other raw materials and labour 30.00 36.11 shortage has negated the advantage of 20.00 the price drop. 10.00 Additionally, transportation costs is 0.00 Y 2014 Y 2015 Y 2016 Y 2017 Y 2018 Y 2019 Y 2020 impacted majorly by crude prices, however, with change in Government Crude oil (USD/Barrel) taxation, the benefit is not realized by the end-user. Source: Country economy data July 2020 10
Indian Construction Costs - A Biannual Review - July 2020 Material Prices The Den Hotel, Bangalore July 2020 11
Indian Construction Costs - A Biannual Review - July 2020 Material Prices Material prices in various cities: Description UoM Mumbai Delhi Bengaluru Hyderabad Chennai Pune Cement Grade 43 INR/MT 6,800 6,800 5,840 6,800 6,400 6,000 Steel Reinforcement INR/MT 42,000 43,000 40,750 43,200 42,500 40,000 Structural Steel INR/MT 48,000 48,000 48,000 46,000 47,000 46,560 Clear Glass 6mm INR /Sqft 68 68 82 66 70 68 8mm INR /Sqft 88 88 102 86 90 88 Stone Granite INR/ Sqft 150-250 120-250 90-250 90-250 115-250 115-250 Marble INR/ Sqft 220-500 220-500 180-500 175-500 150-500 180-500 Makrana INR/ Sqft 250-1000 250-1000 250-1000 250-1000 250-1000 250-1000 Kota INR/ Sqft 40-50 30-40 40-50 40-50 40-50 30-40 Cuddappa INR/ Sqft 20-25 20-25 15-25 15-25 20-25 15-25 Wood Salwood INR/ cuft 1,650 1,550 1,250 1,600 1,250 1,050 Plywood INR/ sqft 67 63 70 63 61 64 12mm thick Paints Emulsion INR/ 20 ltr 3,200 3,000 3,200 3,300 3,400 3,360 Electrical Wires- Copper 1.5 sq mm FRLS INR/mtr 15 14.5 14 14 14 13.5 Cu wire 2.5 sq mm FRLS INR/mtr 23 22.5 22 21.5 21.5 21.5 Cu wire 4 sq mm FRLS INR/mtr 33 32 31 31 30.5 30.5 Cu wire Electrical Al cable 4Cx 2.5 Sqmm INR/mtr 67 65.5 63.5 63 62 62 Al. Ar. Cable 4Cx 4 Sqmm INR/mtr 72 70.5 68.5 67.5 67 67 Al. Ar. Cable Electrical Cu Cables 4Cx 1.5 Sqmm INR/mtr 85 83.5 81 80 79 79 Cu.. Ar. Cable 4Cx 2.5 Sqmm INR/mtr 118 115.5 112 111 110 110 Cu. Ar. Cable 4Cx 4 Sqmm INR/mtr 160 157 152 150 149 149 Cu. Ar. Cable Source: As per Gleeds’ database in the month of June 2020 unless noted otherwise. All prices exclude GST. All prices are supply prices and a guidance only. Transportation, and any other abnormals are not included. July 2020 12
Indian Construction Costs - A Biannual Review - July 2020 Labour Rate Trends July 2020 13
Indian Construction Costs - A Biannual Review - July 2020 Labour Rate Trends in Various Cities The beginning of the lockdown at the end of March 2020, at the earliest as most are daily wage workers, it is also saw a set of alarmed migrant labour, leave the cities to understood that the most labour, will have reservations reach their homes in the hope of safety and security. on returning to Tier 1 cities following the failure to When the rules we relaxed towards the end of May, most flatten the COVID-19 curve. The return of labour full migrant labour left the cities back to the suburban small time to construction sites is only estimated post Diwali, towns and villages. While, the labour will commence work anticipating no second wave of pandemic. Note: Costs do not account for the impact of Covid-19. Rates for 2020 are as on Feb 2020. Rates are in INR and are daily wage rates. 1. Mumbai: 2. New Delhi: 544 569 544 571 495 534 591 479 689 534 462 692 368 591 541 648 525 648 New Mumbai 448 Delhi 509 482 Year 2020 407 Year 2020 498 Year 2019 588 Year 2019 514 Year 2018 588 Year 2018 564 Year 2017 629 Year 2017 564 Year 2016 626 Year 2016 Unskilled Semi-Skilled Skilled Unskilled Semi-Skilled Skilled Source: Minimum Wage-India Source: Minimum Wage-India 3. Chennai 4. Hyderabad: 350 330 327 330 327 319 313 317 450 291 478 368 421 478 421 462 403 Chennai 377 Hyderabad 375 448 Year 2020 Year 2020 338 407 364 Year 2019 345 Year 2019 380 Year 2018 376 Year 2018 380 Year 2017 390 Year 2017 406 Year 2016 390 Year 2016 Unskilled Semi-Skilled Skilled Unskilled Semi-Skilled Skilled Source: Chennai.nic.in Source: Minimum Wage-India July 2020 14
Indian Construction Costs - A Biannual Review - July 2020 5. Bengaluru: 6. Pune: 385 385 493 358 493 414 332 385 405 310 539 325 405 539 377 488 350 Bengaluru 456 424 Pune 325 Year 2020 Year 2020 317 346 341 Year 2019 372 Year 2019 367 Year 2018 443 Year 2018 395 Year 2017 Year 2017 512 395 Year 2016 512 Year 2016 Unskilled Semi-Skilled Skilled Unskilled Semi-Skilled Skilled Source: Minimum Wage-India Source: Maharashtra Jeevan Pradhikaran Post Covid-19 following a survey that was conducted by Gleeds in the 2nd week of May 2020, it is noted that the labour rates were predicted to increase by more than 10%. Migrant labour has been badly hurt in the present crisis. cities. Government aid including a three-month wage and The complete lockdown on March 24th that came as supply of essentials like oil and rice, now announced till a surprise to the entire nation, left the labour stuck in the end of November 2020, have prompted labour to stay large cities with little or no means to fend for themselves. on in their hometowns. In the current monsoon season, This brought about an exodus of labour on foot to their work progress is slow and the labour are perceived to villages. Post the relaxations of lockdown measures late only return post monsoon, after the Diwali festivities when May, most labour found their way back home and have the seasonal demand of the agricultural sector is over, the commenced the seasonal agricultural jobs, refusing COVID-19 crisis is curtailed or contained and the need to to return for large work on construction sites in bigger earn resurfaces. July 2020 15
Indian Construction Costs - A Biannual Review - July 2020 Construction Sector Outlook Vivanta by Taj, Coromandel, Chennai July 2020 16
Indian Construction Costs - A Biannual Review - July 2020 Construction Sector Outlook The construction industry was on an upward trend in 2019. Residential Sector All sectors were flourishing, especially the commercial and residential sector. India also jumped to the 63rd position in Residential sector was also on the road to improvement, World Bank’s ‘Ease of Doing Business 2020’ report, both with the pickup of affordable and mid-range homes, while reflecting and attracting the confidence of local and global the premium and ultra-premium was left more to end entities. user requirements. The Indian Government had created an alternative investment fund of INR 250 Billion for last- mile funding of 1,600 stalled housing projects. GST rates Commercial Sector were slashed from 8% to 1% for affordable homes and There was a rise in IT companies across the country with 12% to 5% for regular units in March 2019 to make under companies basing themselves in prominent cities like Delhi, construction projects more attractive. Housing prices Mumbai, Bangalore, Hyderabad, Chennai and Pune. The however remained stagnant in the year and the growth demand for commercial buildings rose and the supply was rate was about 1%. However, it is understood that the IT less, which brought about a higher rental cost, which in hub cities like Mumbai, Hyderabad, Pune and Bangalore turn brought about a good return in investment. showcased a slightly higher growth rate in comparison to the other cities. This sector was reported to have received $2.9 billion investment from private sectors in the year 2019. Office assets were continuously growing, and investment was Impact of Covid-19: Medium Impact providing stable returns. There has also been a 40% growth in the sector for both leasing and pre-leasing. Home loan collection has plummeted in March 2020, an effect of the pandemic. Residential bookings fell by about 78% as compared to January Impact of Covid-19: Medium Impact 2020. There have been 6.4lakh unsold units and 4.7 lakh units yet to be completed nationwide in Delayed decisions on occupancy and hesitation the last quarter. The RBI has allowed a 3-month to rent or buy spaces brings this sector into an moratorium on term loans till May 2020, which was uncertain standstill with no new revenue generation. then further extended will August 2020, expecting The productivity of ‘work from home’ or WFH has to release some pressure off the developers as increased in the lockdown period and there is a sure well as home loaners, however their cash outflows possibility of reduction of the seat-based leases in the long run maybe negated due to the stalled as a consequence of more staff availing the WFH projects. The housing demand is seen to decline option. Offices are also now relooking into office as investors might shy away in locking their capital space redesign or refurbishment to accommodate in physical assets in an unstable environment. With the social distancing and health and hygiene norms. the overhanging job uncertainties following lay-offs There will be delays in the completion of office and salary cuts home buyers may withhold till more spaces due to revised operating procedures (design promising times, posing a challenge to the housing related such as upgrading HVAC and workspaces), sector. There also now is an interest towards disrupted supply chain and the unavailability of township following a desire to live in a controlled labour. Newer project propositions maybe withheld environment. Tier II and Tier III cities may see a considering the present uncertainty. Firms are likely rise in the demand for housing long term following to opt for centralized operations and consolidate reverse migration and the reservation to move back their space holdings to cut costs and optimize work into a crowded Tier I city. operations. July 2020 17
Indian Construction Costs - A Biannual Review - July 2020 Hospitality Sector Impact of Covid-19: High Impact The market size of hotel industry in India (including unorganized market) is estimated at $22 Billion in 2019, growing at 8.6% till 2025. In the past few years, the year on According to a Retailers Association of India report, year growth rate has been about 7%. The tourism market by end of February itself, the business had dropped in India has picked up which had a direct bearing on the by 20% to 25% and in March the business has demand for the hotel, increasing the occupancy. There reduced to only 15% of the average yearly business. was a reported 70% to 80% occupancy in 2019, while only ICRA estimates rental expenses form a sizeable 60% is required to being in a good return of investment. share of 12% to 16% of revenues for retailers, Rapid urbanisation also saw the rise of tier 3 type hotels therefore, all tenants are likely to negotiate for and many hotel managements companies have started waiver or rebate of the rentals. Retailers Association setting up in smaller towns. The rise of the economical of India states that India is staring at a scenario hotels has pumped in large revenues. where 30% of the retail stores would shut down, leading to 1.8 million people losing their jobs. The spending capacity of customers has reduced in turn affecting the sector. Having said that, the essentials Impact of Covid-19: High Impact and pharmaceutical industry is adjusting to over demand and the practice of hoarding. Though malls and other large retail have reopened, there seems This sector which is heavily dependent on the trade, to be a big customer reservation against visiting travel and tourism, has come to a sudden standstill public places despite the all health and hygiene post the global travel bans and prolonged lockdown precautions being in place. in India. Employees have been laid-off and the indefinite timeline for reopening has brought this sector to a standstill. The sector is seen to be now Healthcare Sector functioning at about 15% capacity, with occupancy consisting of people who are quarantined or medical The healthcare sector has been growing steadily in the past personnel. The drop of revenue for the industry is few years and has become one of India’s biggest sectors. expected to range from $4.2 to $4.7 billion with the The market was estimated to increase three-fold by the most affected regions being Bengaluru, Mumbai, Indian Brand Equity Foundation (IBEF), with a promising Delhi & Gurugram. The first to recover post the slight scope for the contribution to the country’s GDP, which is relaxations maybe the economy and mid-scale presently 1.15% of the total GDP. hotels, following the reopening of the manufacturing units in small towns and the agricultural sector. While this sector is adversely affected in other parts Impact of Covid-19: Medium Impact of the world, 80% of India’s revenue is generated from domestic travel which may pick up faster when The healthcare system has also been impacted the COVID-19 curve is flattened. during the ongoing crisis. The unprecedented situation has challenged the sector to provide and support the unforeseen needs. The government Retail Sector sector has now been supported by the private sector to cater to the COVID crisis. The sector This sector seemed to have struggled in the past year is experiencing a deficit on the requirement of 2019. The leasing activities reduced across the major equipment, consumables and resources such cities and the level of vacancy fell slightly from the previous as beds, ventilators and manpower and is still learning to cope with the rise in safety and hygiene year. The retail industry however attracted private equity requirements to prevent the contraction of the investments from around the world totalling to around Virus. Along with this however, there is a significant 1billion US dollar, which seemed to be a promising market drop in the outpatient and surgery requirements, for the international retailers. more based of the psychology of possible patients. This trend is expected to continue for the next 6 months, in anticipation that a more permanent solution to the COVID crisis is found. July 2020 18
Indian Construction Costs - A Biannual Review - July 2020 Pharmaceutical Sector Manufacturing Sector India’s Pharmaceutical sector is the largest producers of This sector accounted for about 16.8% of India’s total vaccines in the world and is a generic provider of drugs GDP as per the Ministry of Statistics and Programme globally. It supplies over 50 per cent of global demand for Implementation (MoSPI). Both domestic and International various vaccines, 40 per cent of generic demand in the US Investments in the Indian manufacturing unit have been on and 25 per cent of all medicine in UK. The projection of the the rise. Government policies such as ‘Make in India’ and industry was at about 10-12 percent in the next five years sector specific investments in various companies aim to leading the country to be amongst the top ten in world make India a global hub. The introduction of GST evened for medicine spending. The Government with the vision to out the tax complications and served as a big attraction for make India the world leader in end to end production of foreign investors. pharmaceutical products, introduced the Pharma vision 2020, with the goal to systemise the process. Impact of Covid-19: Low impact Impact of Covid-19: Medium Impact It may be noted that these units though slowing The active pharmaceutical ingredients also known down maybe the sector which will be running as API’s are mostly sourced by India from China. through and post Covid-19 crisis. There would be Post COVID-19, the supply of this has gone into a demand for locally made and sourced materials an acute shortage. It would be prudent for the allowing the sector to find a new path for growth. country to now look to source this APIs locally to With China being the epicentre of the pandemic, bridge the gap between the supply and demand of the pharmaceuticals that it is set out to produce it will be natural that the global market might look and export. The breakthrough may allow India to for other alternatives. India was already preparing be the global option which will boost the industry to boost its manufacturing sector, and the policies significantly. The policy of ‘Pharma India 2020’ and taxations have already been implemented to was aiming to make India the no 1 manufacturing ease business, opening opportunities to global industry for end to end pharmaceuticals investors to consider India for its manufacturing manufacturing. The rise in sales is likely to bring up base. Having a growing strength of working the demand for pharmaceutical manufacturing units. population, this sector has a potential to surge. Data Centres With the present work from home options the India in the past two years India has grown in the usage requirement for data storage has risen, replacing of data centres, following most of the IT sectors moving server- based systems. Data centres are also their infrastructure to cloud. Increased digitalization efforts now a welcome and necessary option for most of the Indian government and plans for smart cities is companies considering the amount of data another driver. Data localization mandates driven by the generated as a result of WFH options being used. government has also led to increased regional presence This overwhelming data pressurises a company’s by the MNCs and big tech companies like Google, in-house capabilities paving a path for the use Apple, Amazon/AWS, Microsoft, Facebook, as well as of data centres. The pandemic, uncertainty, e-commerce giants. It is also noticed that Mumbai has the and isolation have made storage and dispersal highest use of data centres accounting for the nearly half of digital data pivotal in preventing the global of India’s usage. The financial sector also was looking at economic system from collapsing. Even before the an increased demand in data storage following the RBI outbreak, the global focus had already shifted to mandate on use of servers located in different parts of the AI, cloud storage and IoT. Flexibility of usage and country. payment, such as pay as you go, allows for less initial investment from a company’s point of view and the is more economical with very little space Impact of Covid-19: Low impact constraints. The usage of data centres are more likely to rise now as most companies are relooking into their digital infrastructure and moving towards the use of data centres. July 2020 19
Indian Construction Costs - A Biannual Review - July 2020 H1 2020 Construction Costs: Sector Wise Marks & Spencer July 2020 20
Indian Construction Costs - A Biannual Review - July 2020 H1 2020 Construction Costs: Sector Wise Sector Wise Costing: Assumptions for Bengaluru Pune Delhi Building Type Costs ₹ / Sqft ₹ / Sqft ₹ / Sqft Residential Affordable BUA: 3,00,000 sqft 1,950 to 2,300 1,900 to 2,200 2,290 to 2,715 Premium BUA: 6,00,000 sqft 2,460 to 3,305 2,460 to 3,305 3,200 to 3,600 Commercial Building Commercial BUA: 10,00,000 sqft 2,350 to 2,800 2,700 to 3,000 2,950 to 3,400 Office Fit-out Note: Costs based on carpet area for office fit-outs only. Basic CA: 15,000sqft 2,000 to 2,400 2,000 to 2,300 2,000 to 2,500 Standard CA: 30,000sqft 2,600 to 3,200 2,400 to 3,200 2,600 to 3,400 Premium CA: 50,000sqft 4,000 to 7,000 4,000 to 6,500 4,000 to 7,200 Retail Malls with retail stores 2,415 to 2,800 2,375 to 2,750 2,400 to 2,950 Store fit-out costs on carpet area Quick Service Restaurants CA: 2,500 sqft 2,750 to 3,200 2,700 to 3,150 2,900 to 3,300 Apparel stores CA:25,000 sqft 2,000 to 2,300 2,000 to 2,200 2,150 to 2,450 Discount sports store CA:25,000 sqft 1,250 to 1,800 1,200 to 1,750 1,500 to 1,900 Jewellery CA: 8,000 sqft 5,000 to 6,500 4,800 to 6,200 5,500 to 7,000 Hospitality 3 star Hotel 100 key 3,800 to 4,650 3,400 to 4,500 4,600 to 5,500 4 star Hotel 150 key 4,650 to 5,500 4,250 to 5,100 5,950 to 6,800 5 star Hotel 150 key 6,800 to 8,500 6,300 to 7,800 7,500 to 9,000 Healthcare Hospitals 500 bed capacity 4,500 to 5,200 4,550 to 5,300 5,500 to 6,600 Education 500 Pupil, School* 2,600 to 3,300 2,300 to 2,850 4,250 to 4,800 high school University** Campus 5,100 to 5,800 4,700 to 5,500 5,500 to 6,350 Industrial Pharmaceutical 3,300 to 4,200 2,970 to 3,800 3,500 to 4,300 Others Multi-level Car park 850 to 1,200 800 to 1,050 1,050 to 1,300 Data Centres Shell only Multi-tenant 4,200 to 6,200 4,200 to 6,000 4,400 to 6,350 Shell only Hyperscale 5,250 to 7,150 5,100 to 7,000 5,400 to 7,350 Fit-out (₹/MW) Multi-tenant 18,00,00,000 to 22,00,00,000 Fit-out (₹/MW) Hyperscale 16,00,00,000 to 20,00,00,000 * Classroom with basic indoor and outdoor facilities. **Learning rooms with required amenities Note: The costs noted in the above table do not reflect the impact of Covid-19 and is pre Covid-19 pricing. Source: Gleeds India Data-base July 2020 21
Indian Construction Costs - A Biannual Review - July 2020 Sector Wise Costing: Assumptions for Mumbai Chennai Hyderabad Building Type Costs ₹ / Sqft ₹ / Sqft ₹ / Sqft Residential Affordable BUA: 3,00,000 sqft 2,375 to 2,800 1,865 to 2,205 1,865 to 2,100 Premium BUA: 6,00,000 sqft 3,200 to 3,750 2,545 to 3,050 2,400 to 3,000 Commercial Building Commercial BUA: 10,00,000 sqft 3,050 to 3,500 2,300 to 2,750 2,375 to 2,800 Office Note: Costs based on carpet area for office fit-outs only. Basic CA: 15,000sqft 2,200 to 2,700 1,900 to 2,300 2,000 to 2,400 Standard CA: 30,000sqft 2,800 to 3,600 2,400 to 3,000 2,600 to 3,200 Premium CA: 50,000sqft 4,000 to 7,500 3,800 to 6,200 3,900 to 6,500 Retail Malls 2,545 to 3,000 2,375 to 2,800 2,375 to 2,700 Store fit-out costs on carpet area Quick Service BUA: 2,500 sqft 3,000 to 3,400 2,700 to 3,100 2,750 to 3,200 Restaurants Apparel stores BUA: 25,000 sqft 2,200 to 2,500 1,900 to 2,250 2,000 to 2,300 Discount sports store BUA: 25,000 sqft 1,500 to 2,000 1,200 to 1,700 1,250 to 1,800 Jewellery BUA: 8,000 sqft 5,500 to 7,000 5,000 to 6,000 5,000 to 6,500 Hospitality 3-star Hotel 100 key 4,650 to 5,900 3,700 to 4,500 3,400 to 4,660 4-star Hotel 150 key 5,950 to 7,200 4,500 to 5,400 4,350 to 5,500 5-star Hotel 150 key 7,500 to 9,500 6,400 to 7,500 6,800 to 8,100 Healthcare Hospitals 500 bed capacity 5,500 to 6,800 4,200 to 5,000 4,400 to 5,200 Education 500 Pupil, School* 4,650 to 5,000 2,500 to 3,250 2,550 to 3,650 high school University** Campus 5,950 to 6,500 4,650 to 5,500 4,650 to 5,550 Industrial Pharmaceutical 4,000 to 5,500 3,100 to 4,000 3,250 to 4,100 Others Multi-level Car park 1,200 to 1,350 800 to 1,100 850 to 1,200 Data Centres Shell only Multi-tenant 4,650 to 5,750 4,100 to 4,900 4,250 to 5,100 Shell only Hyperscale 7,800 to 8,300 6,150 to 7,000 6,100 to 7,200 Fit-out (₹/MW) Multi-tenant 18,00,00,000 to 22,00,00,000 Fit-out (₹/MW) Hyperscale 16,00,00,000 to 20,00,00,000 *Classroom with basic indoor and outdoor facilities. **Learning rooms with required amenities. Note: The costs noted in the above table do not reflect the impact of Covid-19 and is pre Covid-19 pricing. Source: Gleeds India Data-base. July 2020 22
Indian Construction Costs - A Biannual Review - July 2020 Assumptions Made and Notes for reading the Costs Data provided in this report is an average range of costs. costs indicated. The following are the parameters that are There are many cost parameters that contribute to costs to be considered: and some judgement is to be applied while using the Procurement Site conditions Market conditions. route considered Assumptions made Location Design on site abnormal Building shape Requirements of Time scale for and size the end user completion Quality and safety Contract type Any site restrictions systems required Please note the following pertaining to the costs data All costs are deemed to exclude: provided. • Site abnormals and any specific site conditions. • All costs noted are construction costs only. • Client’s cost for land acquisition • All costs are in Indian National Rupees unless noted • Client’s overheads otherwise. • Client’s profit margin • All costs are per square foot unless noted otherwise. • Pre-opening costs • All cost data is indicative of costs incurred at the time of the making of the report. • Consultants, designers, and other project management fees • The impact of Covid-19 is not accounted. All costs are pre-Covid-19 unless noted otherwise. • Land Value • Project Insurance All costs are deemed to include: • Force Majeure • All construction costs including shell and core, • Any administration costs incurred by the Client. architectural works, interiors and finishes, MEP and external development works unless noted otherwise. • Any preclearing, logistic costs incurred by Client before site hand over to contractor. GST • Contractor’s preliminaries • GST. • Contractor’s overheads and profits • Contingency • Inflation (tender and construction inflation) Area definitions followed in this document. As per IS 3861-2002 RERA Built up area Plinth area shall mean the built-up covered measured The built-up area includes the carpet area, plus the (BUA) at the floor level of the basement or of any storey extra areas certified by the authorities, such as the area of the outer and inner walls, dry balcony area, etc. All costs noted below is on the built-up area unless noted otherwise. This indicates the cost incurred on all the unusable areas, still contribute to costs. July 2020 23
Indian Construction Costs - A Biannual Review - July 2020 City Cost Indices Marks & Spencer July 2020 24
Indian Construction Costs - A Biannual Review - July 2020 City Cost Indices Gleeds carried out an extensive exercise to map the costs Appropriate weightage was given to each of the items and across the various Indian cities. based on weighted average method, a base Index was calculated. The following methodology was adopted to derive the indices. • December has been considered as the base month as this is the best representation of costs before the uncertainty of • A basket of items comprising of the most commonly the pandemic. The base city taken for calculation of Index used materials in construction, labour and consumables is Bangalore. was established. These goods have been identified and known to demonstrate the inflation and dynamic nature • Cost movement for the different cities across similar of the goods typically used in the construction sector. timelines has been mapped and the indices were thus Approximate individual quantities within the items were derived. taken to represent standard type of commercial building. The graph below indicates the construction costs indices for the six major cities for four months starting December 2019, with Bengaluru as the base. Construction Cost Indices for Various Cities 115.00 113 110.00 111 109 108 108 107 105.00 107 106 105 105 105 104 104 103 103 103 100.00 102 102 102 101 100 99 98 98 95.00 90.00 Bangalore Pune Chennai Hyderabad NCR Mumbai Dec-19 Jan-20 Mar-20 May-20 Source: Gleeds’ Internal Database. July 2020 25
Indian Construction Costs - A Biannual Review - July 2020 Industry Transformation Godrej One, Mumbai July 2020 26
Indian Construction Costs - A Biannual Review - July 2020 Industry Transformation • Regular disinfection Clean workspaces • Regular cleaning and sanitisation • More sanitisation stations • Self-owned personal protection equipment. • Less contact points Safe workspaces • Infrared cameras for temperature checks • Sustainable designs • De-densification of offices • More work from homes options Social distancing • Introduction of work shifts • Staggered break times • Reassessed productivity. • Revised programme timelines. Project completion times will be revised based on • Distorted supply chain. • Use locally sourced materials. • Prefer local manufacturers. Supply chain rebalance • Preferred readily available products. • Mechanized Construction. • Modular construction Construction trends • Prefabrication • 3D printing for commonly used components • Artificial Intelligence • Virtual realty and Augmented realty • Drone technology Move to technology • BIM • Automation • Parametric design • Return to sites only in November (estimated) Labour Crisis • Additional prelims for labour camp • Increase in daily wage • Change in Contractual terms- Force Majeure • Change in contractor’s prelims • Site management Evolution • Project management • Human Centric Design • Programme July 2020 27
Indian Construction Costs - A Biannual Review - July 2020 Look Ahead Taj, Chennai July 2020 28
Indian Construction Costs - A Biannual Review - July 2020 Look Ahead The construction industry is a good contribution to the Material and labour are not only cost contributors but nations’ economy and the industry has commenced also the root of the construction activities. Supply chain works, when the lockdown regulations were relaxed late disruptions and unavailability of labour may cripple the May 2020. Sites works have resumed in some cities, with smooth flow of construction activities and giving rise to renewed standard operating procedures to create a safe delays and losses. However, the industry now has time to work environment. While some cities are still shutdown, look at retrieving it’s foothold from the sudden unforeseen clients have commenced on the designing strategies and downslide, by focussing on ‘working with the COVID-19’ are occupied with readying design and other pre-contract and rearranging itself to best suit the new requisites. works for future projects. A look towards technology will also be a key to the world For the newer construction, set out to commence after of construction which may include a drive towards use the period of 6 months, based on a survey conducted by of machinery, new equipment and the adaptation of less Gleeds’ in the second week of May 2020, it is predicted popular forms of construction such as pre-engineered that cost of construction might increase by 5% to 7% buildings/modular construction. provided the country is COVID-19 free. However, with that, is also the increase of the Contractor’s prelims which is Moving into the future which includes co-existing with the a consequence of the mandatory high health and safety COVID-19, the industry is seen to be picking up the pieces requirements for site cleanliness and labour camps. This and reconstructing itself to move forward into a better maybe slightly offset with the reduction in the contractor’s tomorrow. mark-up, which may be offered to ensure competitiveness and with the intent to survive in the market. Taj, Chennai July 2020 29
Indian Construction Costs - A Biannual Review - July 2020 References • IBEF: About Indian Growth rate and statistics. [www.ibef.org] • Statista: India inflation rate from 1984 to 2021 [www.statista.com] • Government of India, Ministry of Finance: Economic Survey 2019-2020 [www.indiabudget.gov.in] • GDP growth forecasts [www.adb.org] [www.imf.org] and media reports • Indian retail industry analysis [www.ibef.org] • Manufacturing Sector in India [www.ibef.org] • Indian real estate industry [www.ibef.org] • Healthcare industry in India [www.ibef.org] • Monetary Policy Report. [www.rbi.org.in] • Covid-19: Impact on real estate, Credai-MCHI [www.mchi.net] • India real estate-A different world post Covid-19, Anarock [api.anarock.com] • Media reports: Economic Times, NDTV, Business Standard, The Hindu Business Line, Moneycontrol, India today and Zee business. Abbreviations MRICS: Member of the Royal Institution of Chartered Sqmm: Square millimetre Surveyors. Ltr: Litre USD: United States Dollar Mtr: Linear metre INR: Indian National Rupee MT: Metric tonne GST: Goods and Services Tax FRLS: Fire retard low smoke MEP: Mechanical, Electrical and Plumbing Al: Aluminium BUA: Built-up area Cu: Copper CA: Carpet area Ar: Armoured Sqft: Square foot MW: Mega Watt Cuft: Cubic feet July 2020 30
Indian Construction Costs - A Biannual Review - July 2020 Our Services A MULTIDISCIPLINARY APPROACH Gleeds operates a partnering principle with clients and project teams, offering impartial advice across an extensive range of services to provide solutions for every stage of the property life-cycle. • Project Management – control and delivery of your projects • Cost Management – predictability and control of costs • Health & Safety • Project Monitoring • Advisory – delivering bespoke integrated solutions • Gleeds Digital Services (GDS) India Overview Residential 117 million sq.ft Education Hospitality 5.2 million sq.ft 6397 Keys Sector Mixed Use Presence Industrial 18.8 million sq.ft 4 million sq.ft India Bangalore (Head Office) Commercial Leisure & Retail Mumbai 88 million sq.ft faith Based 24 million sq.ft 9 million sq.ft Pune Healthcare Delhi NCR 3060+ Beds Chennai Hyderabad July 2020 31
Indian Construction Costs - A Biannual Review - July 2020 Register with Gleeds- our cloud based integrated registration database for design professionals, contractors, suppliers and product manufacturers, recently launched to allow us to reach out to you quicker for our upcoming project opportunities. Click on https://tinyurl.com/gleedsregister or scan the QR code using your camera to complete the registration. For queries regarding the registration, please write to us at register@gleeds.in For any further queries, please contact Gleeds India Insight and Analytics at insights@gleeds.in or: Ben Huskisson, MRICS Vishal Shah, MRICS Managing Director Director Email: ben.huskisson@gleeds.in Email: vishal.shah@gleeds.in Ashish Pimpalkhare, MRICS Sushma Wilson, MRICS Senior Associate Director Executive Cost Manager Email: ashish.pimpalkhare@gleeds.in Email: sushma.wilson@gleeds.in This issue was compiled by Gleeds India I&A with contributions from Siva Senathipathy, Jagjit Avdeel, Balaprakash B, Ravi K, PVSS Varma, Jagan Mohan k, Mallikarjun GS, Tushar Banerjee, Mayura Godse, Vimalraj B, Ramana Kumar, Bhagyshree Parikh, Kiran Pawar, Rahul V, Rajesh Babu, Bharat H, Padmini G and Srinivas S. © July 2020 by Gleeds Consulting (I) Pvt. Ltd. Legal Disclaimer: This paper was prepared by Gleeds India Consulting (I) Pvt. Ltd. and is for general information only. Neither Gleeds nor any of their partners, directors, employees or other persons acting on their behalf makes any warranty, express or implied and assumes any liability with respect to the information or methods contained in this paper to any person or party. This document is subject to copyright and must not be reproduced. July 2020 32
Indian Construction Costs - A Biannual Review - July 2020 July 2020 33
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