Middle East Conflict Adds to Property Costs in South Mumbai: Here’s How

Escalating tensions in the Middle East have begun to impact India's real estate sector, particularly in the luxury housing segment. Disruptions in the Strait of Hormuz, a critical global trade route, are pushing up material costs and threatening project timelines, according to a report by Anarock Group.

The closure of the Strait of Hormuz has forced shipping vessels carrying construction materials to reroute via the Cape of Good Hope, a rocky headland on the Atlantic coast of South Africa. This diversion has increased freight costs by ₹1.5-3.5 lakh per container and extended transit times by 10-20 days, raising the risk of project delays and even stalled developments.

The situation is further complicated by a sharp rise in marine fuel prices, now around ₹1 lakh per tonne, along with additional war-risk premiums and insurance surcharges. These disruptions are expected to hit premium real estate hubs the hardest, including the Mumbai Metropolitan Region. Micro-markets like Worli, South Mumbai, BKC, and Lower Parel, which are dominated by high-rise and ultra-luxury projects, will be particularly affected.

India’s ultra-luxury housing segment, defined as homes priced above ₹40 crore, recorded 59 transactions worth around ₹4,754 crore in 2024, with Mumbai accounting for nearly 88% of both volume and value. Despite rising construction costs, developers remain confident that demand in this segment will hold steady, as high-net buyers are relatively insulated from price increases. Most developers expect to pass on the cost pressures through price hikes of over 5% in the luxury housing segment.

Steel prices have surged nearly 20% to ₹72,000 per tonne, adding roughly ₹50 per sq ft to the cost of building high-rises in Mumbai, which currently has well over 10,000 luxury units under construction. Other key construction materials have also seen significant price increases. Aluminium rates have climbed to about ₹3.5 lakh per tonne due to production disruptions in Gulf countries, while bitumen prices remain as high as ₹48,000–51,000 per tonne. The cost of hot rolled coil is now around ₹51,000-56,000, with the report warning it could hit ₹62,000 by June if the situation does not ease. Imported luxury materials such as Italian marble are also costlier by ₹50–150 per sq ft due to higher logistics expenses.

Rising crude prices, with Brent crude trading above $100 per barrel, are driving up diesel costs, further increasing expenses for construction equipment and on-site operations. Non-resident Indians (NRIs), who contribute 15–22% of high-end housing sales in major metro cities like Mumbai and Delhi, and up to 30% or more of total sales value in premium projects, may face the brunt of these disruptions. The geopolitical situation has disrupted air travel in several regions, leading to limited flight availability and logistical challenges, which could delay site visits and purchase decisions, affecting deal closures.

The crisis, linked to the conflict between the US-Israel and Iran, comes at a time when housing demand was already showing signs of cooling, even as construction costs have climbed steadily over the past few years. Indian developers are now confronted with a more challenging landscape, where they must keep project timelines on track while managing rising input costs. Even in a best-case scenario, a full normalization of global shipping could take one to three months, making it difficult for developers to achieve their usual monsoon timelines and potentially disrupting construction schedules through the year.

“Just as the 'tariff war' highlighted the need for India to find alternate markets to do business with, the Gulf war has revealed various previously unexamined, potentially weak links in the supply chain of construction materials,” Prashant Thakur, Executive Director and Head, Research & Advisory at Anarock Group, said in the report.

Key Takeaways: - Middle East conflicts are disrupting global trade routes, increasing construction costs of properties in India. - Luxury housing prices in Mumbai could rise by over 5% as developers pass on increased costs to homebuyers. - High-net buyers are expected to remain resilient in terms of demand for luxury housing properties despite rising prices.