Rising costs, funding stress: West Asia tensions hit India real estate

India’s real estate sector, which has been on a steady recovery path backed by strong housing demand and improved balance sheets, is starting to feel the early effects of escalating geopolitical tensions in West Asia.

While construction activity on the ground remains largely stable for now, emerging pressures on input costs, funding, and investor sentiment are beginning to reshape the near-term outlook.

According to Adarsh Ranka, Partner and National Real Estate Leader at EY Global, the current impact

on the sector is “limited but evolving,” with cost pressures and supply chain risks being the most immediate concerns.

According to the industry, the most visible impact so far has been the rise in construction input costs, driven largely by higher crude prices. Materials such as steel, cement, PVC, wires, pipes, and glass—key components of real estate development—are witnessing upward pricing pressure.

Ranka notes that certain segments are already facing supply-side challenges. “Steel, PVC, wires, pipes and glass supplies are facing pressure, while ceramic and tile manufacturing is impacted due to fuel constraints,” he says, adding that developers are beginning to see early signs of supply chain disruptions.

However, the sector has so far managed to remain relatively stable. A significant share of construction materials is domestically produced, which has helped insulate developers from sharper global shocks.

Beyond construction, the funding environment is also tightening. Equity fundraising through instruments such as IPOs and Qualified Institutional Placements (QIPs) has already been impacted due to heightened uncertainty in global markets, flagging industry.

“In view of the current environment, companies are increasingly bridging funding gaps through borrowings and foreign currency debt,” Ranka explains. This shift, however, is likely to push up finance costs, especially if global volatility persists and currency risks intensify.

The impact is more pronounced for companies in the Engineering, Procurement and Construction (EPC) segment that have a strong presence in West Asia, claims the industry.

These firms are facing disruptions in project schedules, working capital challenges, and rising fixed costs due to uncertain operating conditions in the region.

Such disruptions could translate into delays in project timelines and margin pressures for companies with significant overseas exposure.

Over the next six months, the sector is expected to face a more visible impact, says industry sources.

Ranka highlights that rising crude prices will continue to increase logistics and construction costs, pushing overall project costs higher. At the same time, inflationary pressures may influence government fiscal measures and delay interest rate cuts—or even trigger rate hikes.

This has direct implications for both developers and homebuyers. Higher interest rates could impact home loan affordability, while also increasing the cost of capital for developers, particularly in capital-intensive segments such as commercial real estate and data centres.

Another area of concern is demand from non-resident Indian (NRI) investors. Buyers from West Asia, a key contributor to premium housing demand, may adopt a cautious approach amid economic uncertainty in the region.

In response to these evolving challenges, developers are already adjusting their strategies.

Ranka suggests a more flexible approach to project launches, including phase-wise development and a sharper focus on monetising existing unsold inventory. “Prioritising high cash-flow projects and maintaining liquidity buffers will be critical in the current environment,” he says.

On the supply side, companies are being advised to lock in prices for key inputs such as steel and cement through medium-term contracts, increase local sourcing, and diversify vendors to reduce supply risks. Bulk procurement and better inventory planning are also emerging as key strategies.

Additionally, the depreciation of the rupee is opening up opportunities to target NRI investors beyond West Asia, helping developers diversify their demand base.

Amid the near-term headwinds, a potential structural opportunity is also emerging.

According to Ranka, global cloud companies are exploring plans to redirect data centre workloads from parts of West Asia to India as a short-term solution. This could accelerate the development of data centre infrastructure in the country in the coming years.

If this shift sustains, it could provide a significant boost to commercial real estate and position India as a key hub in the global data centre ecosystem.

Looking ahead, developers may need to reassess their long-term strategies as the situation evolves. This includes reviewing business models such as asset-light approaches, joint development agreements versus land acquisition, and exposure to capital-intensive projects.

“Periodic review of business decisions, portfolio diversification, and supply chain resilience will be essential as there is greater clarity on the evolving situation,” Ranka notes.

For now, while the direct impact remains contained, the sector is entering a phase of heightened caution—balancing near-term risks with emerging long-term opportunities shaped by shifting global dynamics.