Real Estate Construction Costs Set to Increase by 3-5% in 2026: JLL Report

Construction costs for real estate projects are expected to rise by 3–5% across asset classes in 2026, according to JLL’s Construction Cost Guide, India – 2026, released on March 24. This increase is primarily driven by higher input costs, including labour, which is projected to rise by 5–12% following the implementation of the new labour code in November 2025.

In 2025, material costs presented a mixed picture with divergent trends across categories. Cement, steel, and diesel prices showed a mild decrease of 1-2%, 3-4%, and 5-6%, respectively. However, aluminium and copper costs experienced more significant increases of 8-9% and 9-10%, respectively, driven by global demand pressures and supply chain dynamics.

Labour costs are experiencing the most consistent upward pressure, increasing by 5-6% across all categories. This is due to skilled labour shortages and the high demand for infrastructure development. The government’s GST 2.0 initiative delivers a critical 10% tax relief on cement, promising savings of 2-3% for developers and a 1-1.5% reduction in property prices for homebuyers. However, the new labour code, which took effect in November 2025, mandates enhanced social security benefits, healthcare coverage, and standardized wage frameworks, driving labour costs up 5-12% across all skill categories.

This trend reflects the construction industry’s strategic shift toward long-term value creation while navigating significant regulatory changes and evolving market dynamics. According to Aditya Desai, Executive Director of PDS, India, at JLL, the cost differential across India’s major cities is reshaping capital allocation and driving the expansion of Tier-II cities. For instance, Mumbai commands ₹4,600-5,200 per sq. ft. for luxury high-rises, while Chennai, Bengaluru, and Hyderabad offer competitive rates at ₹4,200-4,800 per sq. ft.

Ashok VS, Head of Cost Management at JLL PDS, India, emphasized that construction costs in 2026 are expected to rise by 3-5% due to regulatory changes, skilled labour scarcity, and stricter environmental standards. Digital technologies can help offset these pressures by improving efficiency and delivering greater project value. Despite rising global construction costs and market uncertainty, significant opportunities are emerging.

On March 23, realtors' bodies CREDAI and NAREDCO highlighted that the real estate industry is already facing a short supply of some building materials. They warned that construction costs could rise further and project timelines could be delayed if the US-Iran crisis persists.