Middle East Conflict Drives Up Property Costs in South Mumbai's Luxury Market

Escalating Middle East tensions have begun to spill over into India's real estate sector, as disruptions in the Strait of Hormuz choke a key global trade route, pushing up material costs and threatening project timelines, particularly in the luxury housing segment, according to a report by Anarock Group.

An effective closure of the critical waterway has forced shipping vessels carrying construction materials to reroute via Cape of Good Hope, a rocky headland on the Atlantic coast of South Africa's Cape Peninsula. This diversion has pushed up freight costs by ₹1.5-3.5 lakh per container, while extending transit times by 10-20 days, increasing the risk of project delays, and in some cases, stalled developments, the report said.

Meanwhile, the impact is being compounded by a sharp rise in marine fuel prices, now hovering around ₹1 lakh per tonne, along with additional war-risk premiums and insurance surcharges.

Developers to pass on rising costs to homebuyers These disruptions are expected to hit premium real estate hubs hardest, including the Mumbai Metropolitan Region. Micro-markets like Worli, South Mumbai, BKC, and Lower Parel will be particularly impacted, as high-rise and ultra-luxury projects dominate in these areas. India’s ultra-luxury housing segment, typically 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.

Even as construction costs climb, 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.

Impact of the disruptions on construction inputs 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 witnessed a sharp increase in prices. Aluminium rates have climbed to about ₹3.5 lakh per tonne amid production disruptions in Gulf countries, while bitumen prices remain as high as ₹48,000–51,000 per tonne.

Additionally, the cost of hot rolled coil now hovers at ₹51,000-56,000, with the report warning that it may hit ₹62,000 by June if the situation does not ease. Even imported luxury materials such as Italian marble are now costlier by ₹50–150 per sq ft due to elevated logistics expenses.

Beyond these factors, rising crude prices, with Brent crude trading above $100 per barrel, are also driving up diesel costs, further increasing expenses for construction equipment and on-site operations.

NRIs likely to face the brunt 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 the ongoing disruptions. The geopolitical situation has disrupted air travel in several regions, leading to limited flight availability, coupled with logistical challenges. These issues could delay site visits and purchase decisions, which would affect deal closures if the situation does not improve in the near term, Anarock said in the report.

What's the outlook for the housing sector? The crisis, linked to US-Israel war with 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 an even starker landscape, where they must keep project timelines on track while managing rising input costs. Even in a best-case scenario, a full normalisation 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.