Industrial and warehousing construction cost up in India

V Nagarajan

The economic slowdown due to the Covid-19 pandemic over the last two years has had a significant impact on India’s construction sector, which is sensitive to economic disruptions.

The cascading effect has led to an increase in prices of crucial construction materials including steel, fuel, cement, copper and labour, as well as procurement-related challenges, all of which are pushing up overall construction costs.

Savills India has estimated variations in construction costs for the manufacturing and warehousing sectors with the help of real-time construction cost data and project budgets.

According to Savills India survey, industrial and warehousing space absorption stood at 44 million sq. ft. in 2021 to include 35.1 million sq. ft. from Tier I cities and 8.6 million sq. ft. from Tier II and III cities, driven by a robust growth in the e-commerce and manufacturing sectors as well as rising demand in emerging Tier I and Tier II cities.

On the supply side, India witnessed a fresh supply of 45 million sq. ft. in 2021 where 36 million sq. ft. was from Tier I cities and 8.9 million sq. ft. was from Tier II and III cities.

Growing demand for warehouse space for manufacturing, e-commerce and organised retail are likely to drive warehousing demand in 2022.

The market is likely to see absorption in excess of 40 million sq. ft. (including Tier I, II and III cities) in 2022. On the supply side, Savills India expects around 45+ million sq. ft. during the same period.

Tier II and Tier III cities such as Rajpura, Lucknow, Coimbatore, Jaipur, Guwahati, Bhubaneswar, Nagpur, Kochi/Ernakulam, Indore, Hosur and Patna are likely to witness 12+ million sq. ft. of supply in 2022.

The prices of the most commonly used materials in construction were estimated across the cities to arrive at the overall cost. These materials include cement, steel, crude oil, copper, glass, wood and other materials required, along with labour wages

The global construction market size reached $12.63 trillion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 7.4 per cent according to EMERGEN Research, driven by rapid technological advancements and environmentally friendly buildings with low carbon footprint.

In the last two years, construction costs have increased due to rising material prices such as crude oil, steel, aluminium cement and cost of plumbing and fixtures. Covid-19 caused a significant shift in construction costs, resulting in slightly higher material costs and supply chain disruptions.

According to market research firm ‘Research and Markets’, India’s construction industry is expected to grow at a CAGR of 9.5 per cent between 2022 and 2026.

This is expected to be driven by the government’s increased focus and spending on large-scale infrastructure projects, along with growing demand for industrial and warehousing facilities including data centres, and recovery of demand from the residential and office sectors. In 2020-21, the construction sector’s contribution towards the GDP was 7.6 per cent.

Meanwhile the Technology can bring radical changes in the construction sector. Over the last two years, developers have been more open to integrating technology at various stages of construction.

Developers have started using tools like drones, robotics, building information modeling (BIM), 3D printing, and virtual reality (VR) to improve quality, reduce the time taken for construction and elevate the efficiency of construction technologies.  

I have sold my property and deposited in the capital gains account scheme. Whether interest received on amount deposited is taxable? Premkumar, Sharjah.

Yes. Interest earned on capital gains account is chargeable to tax under the head “Income from Other Sources”. Interest earned on Capital Gain Account is charged to tax in the year it accrues and is credited to the capital gain account of the assessee.

I have inherited ancestral property in India. Can I gift it to my relative? Are there restrictions? Kindly clarify. Shailender Singh, Dubai.

If it is ancestral property, heirs get the right by birth, depending on the religion they belong to in India. The property can be passed on by reorganisation, by way of family settlement or a division in case of a HUF (Hindu Undivided Family). If you want to gift your share from ancestral property, you can do it without any restrictions as it is like your self-earned property.