The Indian real estate sector is projected to grow approximately 10% in the current fiscal year, even as the West Asia war drives up construction costs and new project prices, according to Shekhar G Patel, President of CREDAI National, in an interview with businessline.
Cost Impact and Raw Material Surge
Patel detailed that since the war began at the end of February, costs of key raw materials have risen sharply. Aluminium saw an increase of nearly 60%, steel prices went up by 25-30%, and cement by 25-30%. Overall, construction costs have been impacted by 15-25% at various locations, according to Patel.
The cost impact is expected to persist until the end of August, assuming the war ends now. Patel noted that once fuel prices come down, it will take 1-2 months to see the benefit. If crude prices fall below $80 per barrel and supply chains remain stable by August, construction costs could become more reasonable.
| Raw Material | Price Increase |
|---|---|
| Aluminium | ~60% |
| Steel | 25-30% |
| Cement | 25-30% |
| Overall Construction Cost | 15-25% |
Pricing Dynamics and RERA Constraints
Under RERA regulations, developers cannot increase prices on already sold units, meaning they must absorb losses. Patel explained that part of this loss can be recovered through price increases on new units, typically in increments of 2-5% or 7%. He indicated that the selling price of new projects could rise up to 10%, but if the situation improves, the increase might be limited to 5% over the entire year.
The impact on project cost varies by project type. In affordable housing, land accounts for 30% of costs, construction 50%, and margin 20%, so the construction cost surge hits harder. In premium projects, land is 50%, construction 30%, and margin 20%, making the impact lower. If elevated costs persist through the full construction cycle, the overall project cost impact could be 5-10%; if only for six months, the effect would be much less.
Demand and Growth Outlook
Patel highlighted strong underlying demand. According to NHB data, housing has grown at a CAGR of 10-12% since 2021. The outstanding housing loan book stands at approximately ₹37 lakh crore, representing 11% of GDP. Patel compared this to other nations: China's GDP-to-mortgage ratio is 22-23%, other developing nations around 20%, and developed nations up to 40%, indicating significant room for growth.
The growth rate was around 10% in FY26 and is expected to remain similar this fiscal year. Patel emphasized that rising incomes and increasing demand for better homes support this trajectory. The real estate sector contributes 40-45% to India's overall GDP and has a direct share of 8.4%.
Unsold Inventory and Monsoon Impacts
Regarding unsold inventory, Patel noted that construction is already complete, so no additional cost increases apply—only potential interest carry costs for developers. This presents an opportunity for developers to sell at reasonable rates if demand exists.
Patel also addressed monsoon impacts, stating that water availability affects not just the rural economy and agriculture but also industry broadly, which could influence demand projections.
For investors and analysts, the key takeaway is that despite near-term cost pressures, the structural growth story for Indian real estate remains intact. The sector's resilience, supported by rising incomes and favorable mortgage penetration trends, suggests that the 10% growth forecast is achievable, though price increases on new projects may temper affordability in some segments.
Next milestone: The sector's performance will be closely watched as the monsoon season progresses and as crude oil price trends evolve, with the expectation that construction costs could stabilize by end of August if the war concludes and supply chains normalize.
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