New Labour Laws and Their Impact on India's Real Estate Sector

The new labour laws in India are set to bring significant changes to the real estate sector, with both positive and negative implications. According to experts, while these laws may result in increased costs for real estate players, they also have the potential to resolve the persistent issue of labour shortage.

In response to the announcement of these new laws, the stocks of major real estate companies, including Prestige Estates Ltd., Brigade Enterprises Ltd., and Oberoi Realty Ltd., declined by up to 3% on Monday. The Nifty Realty Index saw all but one stock trading with losses.

The new labour laws introduce several benefits and changes for workers, such as leave, medical cover, social security, and a reduced eligibility period for gratuity from five years to one year. Fixed-term employees and contract workers will now receive benefits comparable to permanent employees.

The cost of labour in the real estate sector varies significantly depending on the city, ranging from 15% to 30% of the overall cost. In Mumbai, excluding the cost of land, labour forms between 20% to 25% of the total construction cost. This means the impact of the new labour code will be less pronounced in Mumbai compared to other cities.

Anuj Puri of Anarock Property Consultants estimates that labour costs could rise by 10% to 15% due to the new laws. This increase could lead to a 3% to 4% rise in total development costs. Puri further suggests that these additional costs could be passed on to buyers rather than being absorbed by the developers' profit and loss accounts.

Ghulam Zia of Knight Frank highlighted that the payment aspect for workers could help address the labour shortage issue, which has been a significant challenge for the real estate sector. He also noted that it will take at least a year for developers to become fully compliant with the new rules.

Shares of Godrej Properties, Brigade Enterprises, Prestige Estates, and other real estate companies are currently trading with losses ranging from 2% to 3%.

Overall, while the new labour laws may initially lead to increased costs and stock market volatility, they have the potential to stabilize the labour market and improve the working conditions of construction workers in the long term.