West Asia crisis may push up realty construction costs by 5% in near term

Kolkata: The escalating West Asia conflict is beginning to exert cost pressure on India's real estate sector, with material prices rising and industry leaders warning of a potential 5 per cent spike in construction costs if hostilities persist through April.

Construction schedules are also likely to be affected because of shortage of materials and resources if the conflict prolongs.

Harshavardhan Neotia, Chairman of Ambuja Neotia Group, said the crisis is triggering a "classic cost-push cycle" for real estate, with crude oil moving from sub-USD70 levels in February to well above USD 110–120 per barrel in March and natural gas witnessing sharp spikes.

"Early pressure is already visible across steel, logistics, and petrochemical-linked materials. If this persists, construction costs could rise meaningfully over the next 1–2 quarters, which may have a bearing on pricing going forward," Neotia said.

Sushil Mohta, President of CREDAI West Bengal and Chairman of Merlin Group, struck a more immediate note of caution.  "If the war continues in April, the cost of construction will go up by 5 per cent immediately. Construction schedules will also be derailed due to shortage of building materials," he told PTI.

Mohta also flagged longer-term risks, warning that a prolonged conflict could dampen India's broader economy, with real estate, which is highly dependent on overall economic conditions, facing sluggish sales and leasing activity alongside higher costs.

On the ground, construction steel prices have already seen a sharp run-up. TMT steel prices surged around 20 per cent in some markets, jumping from approximately Rs 62,000 to Rs 72,000 per tonne between February and March, with broader reports indicating an 18–25 per cent surge over the past 2–3 months, realtors said.  Cement prices remained comparatively stable at 0–5 per cent movement, though demand pressure is building, as reflected in a 10.7 per cent growth in cement output in January 2026.

Mahesh Agarwal, Managing Director of Purti Realty, said his company had not yet raised prices but was closely watching developments.

"Increasing input costs, especially in energy, steel, and cement, are a challenge the real estate industry is currently facing. Our focus continues to be on maintaining stability and transparency for our customers," he said.

Meanwhile, rating agency ICRA, in its latest outlook on the infrastructure construction sector, flagged that geopolitical tensions in West Asia are key factors pressing on bitumen prices. These prices are expected to weigh on construction companies' operating profitability.  ICRA expects operating margins to remain in the 10.3–10.8 per cent range in FY2025-26 and 10.1–10.6 per cent in FY2026-27 — a sharp decline from 13.0–14.0 per cent levels seen in FY2020-21.

ICRA, however, expects revenue growth of construction companies to recover to 6–8 per cent in FY2026-27, compared to an estimated 2–4 per cent in FY2025-26, supported by a pick-up in Jal Jeevan Mission projects and gradual recovery in road project awarding. Order inflows are projected to grow around 10 per cent in FY2026-27.

Suprio Banerjee, Co-Group Head, Corporate Ratings, ICRA, noted that EPC companies with exposure to West Asia are also expected to face pressure on execution momentum due to the ongoing geopolitical challenges.

Diversified EPC players are better positioned, with expected revenue growth of 8–10 per cent in FY2026-27, while road-focused entities continue to face pressure on order addition and intense competition, he added.