Spike in construction cost poses a challenge to Kol affordable housing
Times of India | 20 August 2025
Kolkata: Rising construction costs have emerged as a major challenge for developers of affordable housing, which makes up the biggest share of the residential market in Kolkata. According to a study by real estate consultancy firm Anarock, while labour expenses have increased by 150% since 2019, raw material costs have risen by 40% during the same period. With margins thin in this price-sensitive market, the increase in prices has led to a drop in sales. Construction costs range between Rs 1,500 and 2,500 per sqft for affordable homes in the city. In the past three years, construction costs increased by 27.3%. In Oct 2021, the average cost for grade A projects in a tier-1 city was around Rs 2,200 per sqft. By Oct 2024, it went up to around Rs 2,800 per sqft. Though cement prices declined by a significant 15% last year, steel prices dropped by only 1%. However, in five years, the cost of both materials has increased by 30–57%. Copper prices increased by 19% in one year and as high as 91% in five years (2019–2024).
Purti Realty MD Mahesh Agarwal acknowledged that while demand in the segment remains strong, supply has dipped as many developers have shifted focus towards luxury housing where customer aspirations are evolving. "Affordable projects require larger land parcels, which are scarce in well-connected areas, making them less viable," he said.
However, the proposed GST reforms could help address the strain to some extent, keeping costs stable and ensuring that there is enough affordable housing in Kolkata. "The revised GST structuring signalled by the govt can make a positive difference to construction costs. It has been proposed that there will only be two key rates of 5% and 18%, and that GST on cement will be reduced from 28% to 18%. This would be a major relief as it would decrease the overall tax burden. Developers will have to pay less for cement, steel, and other inputs and will also benefit from simplified regulatory compliance," said Anarock Group executive director and head (research & advisory) Prashant Thakur.
CREDAI Kolkata president Apurva Salarpuria said the revision in GST rates could potentially lower the construction cost by around Rs 150 per sqft, which the developers can then pass on to the buyers to rejuvenate the market. "In affordable housing, the biggest component is construction cost, followed by land. We also hope the govt will revise the definition of affordable housing upwards to Rs 60-65 lakh," he said.
CREDAI West Bengal president Sushil Mohta said approval cost, sanction fees, mutation fee and other charges have also gone up significantly. "Further, there is a huge cost of interest and overhead which adds to project cost due to the time taken for mutation conversion, urban land clearance, and other land related issues. Top developers can still absorb the costs and offer affordable housing while the profit margin tapers down but small developers cannot," he pointed out.