New Labour Laws: The impact on India's real estate sector

The new labour laws may result in increased costs for India's real estate players, but also resolve a long standing issue of shortage of labour, experts told CNBC-TV18 on Monday, November 24.

In response, India's real estate stocks, from Prestige Estates Ltd., to Brigade Enterprises Ltd., and Oberoi Realty Ltd. among others declined up to 3% on Monday.

All but one stock on the Nifty Realty Index are trading with losses.

Among the key benefits and changes for workers as part of the new labour laws, include leave, medical cover, social security and reduced eligibility period for gratuity from five years to one year.

Fixed-term employees and contract workers will now receive benefits comparable to permanent employees.

So how does these new laws impact the real estate sector?

The cost of labour for Real Estate varies between 15% to 30% of the overall cost depending on the city.

The impact of the new labour code will be lesser in Mumbai compared to other cities, where excluding the cost of land, labour forms between 20% to 25% of the total construction cost.

According to Anuj Puri of Anarock Property Consultants, labour costs can go up between 10% to 15% due to the new laws, which could result in the total development costs increasing between 3% to 4%.

Puri went on to add that these costs could be passed on to buyers and not be taken on the P&L accounts as additional costs.

Ghulam Zia of Knight Frank also told CNBC-TV18 that the payment aspect for workers could just end up solving the labour shortage issue, which has been the Achilles heel for the real estate players.

Zia also said that it will take at least a year for the developers to be compliant with the new rules.

Shares of Godrej Properties, Brigade Enterprises, Prestige Estates and others are trading with losses between 2% and 3% on Monday.