Whalesbook
A Fundamental Shift for Developers
The current situation is forcing Indian real estate developers to fundamentally reassess how they operate. It's a shift from just managing short-term costs to a deeper evaluation of project feasibility due to ongoing global shocks. The impact of the conflict is changing how projects are planned, contracted, and built, demanding more resilient supply chains and flexible designs.
Soaring Material Costs
The fallout from the Iran-Israel conflict has triggered significant price increases for construction materials across India. Steel prices, for instance, jumped by 20-25% in about a month, reaching ₹61,000-₹62,000 per tonne. This surge is estimated to add ₹50 per square foot to construction costs in Mumbai's high-rise projects and similar amounts in other major cities. Aluminium prices have also risen sharply, with domestic rates nearing ₹375 per kilogram by April 2026, driven by global price rallies and limited stock. These increases are directly linked to disruptions in global energy markets, higher shipping and insurance costs due to volatile routes near the Strait of Hormuz, and rising crude oil prices affecting oil-based materials.
Supply Chain Breakdown
Supply chain problems extend beyond just prices. India's main ceramic tile production hub in Morbi, which accounts for 90% of the country's output, has faced major operational halts. Hundreds of factories temporarily shut down due to gas supply disruptions. This not only affects tile availability but also points to wider issues for energy-intensive manufacturing. Developers are now planning for longer construction times, expecting delays of 15 days or more. They are also actively seeking multiple suppliers and securing key materials much earlier in the project timeline to manage these uncertainties. Shortages are also appearing for other essential items like PVC, pipes, and glass.
Developer Adaptations
In response, developers are adapting their strategies. This includes building more flexibility into project designs and purchasing plans, identifying alternative materials to counter supply shocks, and reducing reliance on specific components like those using a lot of aluminum. Larger developers with strong finances and established supplier relationships are better positioned to absorb these higher costs and manage profit adjustments. However, smaller companies face greater risks to their viability. The luxury housing segment, which often uses special imported materials, is seeing cost increases of 12-18%. This is forcing developers to re-evaluate prices for new projects.
Deeper Risks and Global Pressures
This geopolitical crisis is more than a temporary price increase; it's a major test that reveals how exposed the Indian real estate sector is to global supply chain weaknesses. Persistent high energy costs and shipping delays could lead to lasting inflation, posing a serious risk to housing affordability. Developers face a tough choice: absorb higher costs, cutting into their slim profits, or pass them on to buyers, which could slow down demand, especially in the middle-income market. Longer project delays due to material shortages and factory shutdowns could also raise borrowing costs and affect developers' cash flow, particularly for smaller firms. Additionally, the Indian Rupee has hit record lows due to rising oil prices and investor outflows. This currency instability adds more uncertainty for projects that depend on imported parts. Disruptions to shipping in the Gulf also impact essential supplies like bitumen, limestone, and sulphur, which are key for cement and steel production, potentially affecting infrastructure projects. With rising costs, uncertain supplies, and hesitant investors, developers' ability to set prices will be severely challenged, and projects with tight budgets could be at risk unless strategies change or global tensions ease.
Outlook for 2027
Analysts expect a cautious year for residential real estate in the fiscal year 2027, with growth likely to be slow after a strong preceding period. India Ratings predicts 0-3% sales volume growth in major cities, mainly from higher values. ICRA expects new project launches to rise 4-7%, but warns that the ongoing West Asia conflict carries downside risks. High-end and luxury projects are expected to remain more stable due to steady demand from buyers, though they too face cost pressures and may need price adjustments for new projects. The sector's overall stability depends on easing global tensions, diversifying supply chains, and careful cost management by developers to handle changing material prices and keep buyers confident.