Real Estate Industry Warns of Up To 10 Per Cent Cost Escalation Under New Labour Codes

The real estate sector is preparing for a significant change as India moves closer to implementing new labour codes. Developers are anticipating a 5 to 10 per cent increase in baseline costs, according to a report by Business Standard. This increase is fuelled by revised wage structures, compliance requirements, and social and security obligations.

The reforms have been introduced to modernize labour laws and simplify frameworks, and offer better protection. These laws are being implemented faster in construction-heavy industries like real estate to safeguard workers. Developers across major cities are recalibrating their financial setup to factor in the rise in costs. This comes as a warning for interested buyers, as these changes will also be adjusted in the overall costs and may potentially lead to higher project costs as builders deal with the margin pressure.

As real estate developers shift towards higher take-home benefits and expanded employee coverage, workers are set to benefit from the formalization of their work. However, this is expected to increase the load on employers, who will ultimately be required to make contributions to the provident fund, gratuity, and other social security schemes under the new labour code.

According to the report, several developers have stated that these reform codes will weigh heavily on their capital. Notably, the shift towards the new labour norms and the anticipated rise in baseline costs may hit potential buyers in the affordable housing segment if developers transfer the costs to the buyers. On the other hand, the premium housing segment is expected to absorb this additional cost more easily compared to affordable housing projects.

Prospective homebuyers may also need to factor in delays in the timeline for their projects. If the policy is activated mid-project, developers may need to revise labour budgets, renegotiate contracts, and reassess their launch timelines. The new compliance burden may lead to further delays as many projects are already dealing with other challenges, such as the sourcing of raw material. The National Real Estate Development Council (NAREDCO), represented through Niranjan Hiranandani, has already warned that the effect may slow down project launches as developers are still waiting for clarity and stabilization.

Salil Kumar, Director of Marketing and Business Management at CRC Group, states, "In the short term, we may see minor adjustments in construction timelines as companies adapt to the new reporting and contractual norms. But these shifts are offset by fewer disputes, better retention, and smoother operations.

In many ways, these reforms push the sector toward a healthier, more predictable construction ecosystem, and that’s a positive shift for everyone." Despite the confusion and stress around this, the long-term view of these reforms remains positive. The formalization of labour is expected to bring about efficiency and improve productivity at construction sites. As workers getting benefits of social security schemes from their employers are also likely to boost loyalty.

Ultimately, the real estate market is likely to adapt to a more structured labour system, even if the cost implications are uncomfortable in the beginning.