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The Indian construction sector is likely to record steady growth despite near term challenges due to second wave of Covid-19. According to ConsTrack360 estimates, by 2025, the construction output in India is estimated to reach US$ 842535.2M. Further, its contribution to the country’s GDP is expected to be around 9% by 2025. The construction industry in value terms is anticipated to record a CAGR of 11.7% during 2021-2025.
The pandemic has exposed the construction sector to systemic weaknesses including over dependence on unskilled labor, as well as with project and cost management challenges. The sector needs to address these issues to regain momentum in the market.
Also, due to the pandemic, the economic growth of the country reached a five-year low with highly constrained bank credits, private investments drop to decadal lows, and public-private partnerships in the infrastructure sector yet to recover from the project failures.
As per Department for Promotion of Industry and Internal Trade (DPIIT), FDIs in the construction development sector (townships, housing, built up infrastructure and construction development projects) and construction (infrastructure) activities stood at US$ 25.78 billion and US$ 17.22 billion, respectively, between April 2000 and September 2020.
Some of the key investments and investments in the sector include Taj Group engaged with Ambuja Neotia Group, real estate Company, to launch two hotels in Kolkata and one in Patna, November 2020. Also, in October 2020, Brookfield Asset Management invested US$ 2 billion in India to purchase 12.5 million square feet of office space and commercial co-working space from RMZ Corp, a privately held developer.
In the same month, Bhumika Group, Rajasthan-based realty developer, announced to spend US$ 60.81 million (INR 450 crore) in two residential and one retail project in Udaipur, Alwar and Jaipur, respectively. According to property consultant, Anarock, by 2022, India is likely to have 100 new malls. Of which 69 malls will be constructed in the top seven metropolis and the remaining 31 malls will be in Tier 2 & 3 cities.
To gain a competitive advantage, India can focus on fast-tracking projects which are underway by leveraging technologies such as 3D printing, Internet of Things (IoT), Building Information Modelling (BIM), augmented reality (AR), UAV and drones.
Commercial
Due to prevalence of work from home culture, the office space providers are expected to struggle over the medium term. Flexible working options could pose a long term threat to office space demand. Also, IT and IT enabled Services sector is likely to witness reduced floor space requirement as many companies have either adopted flexible/hybrid working options or permanent work from home, given the COVID-19 pandemic.
However, there has been growing demand for sustainable offices in Chennai and Hyderabad. Owing to this, several companies are entering into partnerships to cater to this demand. For instance, in April 2021, RMZ Corp, a realty company, collaborated with Canada Pension Plan Investment Board to construct office complexes in Hyderabad and Chennai. The Canada Pension Plan Investment Board is expected to spend US$210 million (INR 1,500 crore) in this joint venture. As part of the partnership, the companies together will build 10.4 million square feet of commercial sites.
Infrastructure
The infrastructure sector plays an important role in overall development of India. The Government of India launched National Infrastructure Pipeline (NIP) in 2019 with plans to invest INR102 lakh crore during FY 2019-25 to improve infrastructure in the country. The NIP began with 6,835 projects and has now been expanded to 7,400 projects worth INR1.10 lakh crore. Also, in the Union Budget 2021-22, capital expenditure on NIP was increased by 35% to US$75.8bn. With the government focus on infrastructure to drive the economic growth, the construction industry is expected to recover in 2021.
Further, the National Bank for Financing Infrastructure and Development (NBFID) Bill, 2021 was rolled out in March 2021 to develop NBFID as the main financial institution for improving infrastructure funding. The central government will offer allowances of around INR5,000 crore to NBFID by the end of the first financial year.
Apart from this, the government plans to introduce a national ‘Asset Monetization Pipeline’, which will monetize the assets and enhance infrastructure financing via sale of toll roads, oil and gas pipelines and power transmission lines.
Roadways
The government has been focusing on improving roads and highways to improve connectivity in the country. Some of the recent highway and road projects approved include the following: The government sanctioned INR 128.66 crore worth of highway projects in Goa in April 2021 to build 39.7 km of highways in the state. The projects include building a four-lane from the current 2-lane section of Ribandar bypass of NH-748 (Old NH-4A) worth INR 53.27 crore, as well as improving sections of Panjim - Mangalore highway on NH-66 worth INR44.8 crore.
The National Highways Authority of India (NHAI) awarded INR1,169.10 crore highway project in Odisha to Adani Enterprises in April 2021. With this project, the company has a total of 10 NHAI road projects under HAM, Toll-Operate-Transfer (TOT) and Build-Operate-Transfer (BOT) Toll basis in Chhattisgarh, Telangana, Andhra Pradesh, Madhya Pradesh, Kerala, Gujarat, West Bengal and Odisha.
Further, Ministry of Road Transport and Highways approved development of 291 km of highways worth INR726 Cr in Madhya Pradesh in April 2021. Similarly, it sanctioned INR 6,176 crore worth of highway projects across seven states and union territories, including Maharashtra, Assam and Ladakh. Moreover, the NHAI plans to raise INR 1 lakh crore via monetization of national highways in the next five years under the toll operate transfer (TOT) mode.
Earlier, the World Bank announced $500 Million Project in December 2020 to develop green, resilient and safe highways in India. The Green National Highways Corridors Project will support Ministry of Road Transport and Highways (MoRTH) construct 783 km of highways in various geographies. The project will integrate local and marginal materials, industrial byproducts, and other bioengineering solutions.
In December 2020, the Union Minister for Road Transport, Highways and MSMEs, Nitin Gadkari, launched and laid the foundation for 15 Nagaland National Highway (NH) projects with length of ~266 kms, including costs of ~US$ 560.45 million (INR 4127 crore).
These investments and more are likely to support infrastructure growth in the coming years in the country.
Railways
In railways, the National High-speed Rail Corporation Limited (NHSRCL) began Light Detection and Ranging Survey (LiDAR) survey for Delhi-Varanasi high speed rail corridor. The technology will offer all the ground related data within 3-4 months which would usually take 10-12 months earlier. Similar technology will be used for another seven high speed rail corridors.
Also, Japan International Cooperation Agency (JICA) entered into an agreement with the Government of India, to offer Japanese (ODA) loan of around JPY 52,036 million(approximately INR 3,717 Crore) for the developing the Phase 2 of 'R6, 2A and 2B' of Bangalore Metro Rail Corporation Limited (BMRCL)in Bangalore.
Earlier in November 2020, the National High Speed Rail Corporation Limited (NHSRCL) entered into an agreement with Larsen & Toubro (L&T) to design and build a 237 kms high-speed rail corridor between Vapi (Maharashtra-Gujarat border village of Zaroli) and Vadodara (Gujarat).
Residential
The residential construction sector in India is growing rapidly due to urbanization and growing population in the country. Despite the COVID-19 headwinds, the residential sector recorded strong growth in Q3 and Q4 2020, as sales of homes increased across major cities. During July-September 2020, housing sales recorded 86% growth quarter by quarter.
The sales improved owing to low interest rates as RBI significantly reduced the repo rate by as much as 140 basis points. Also, fall in stamp duty and property registration fee in a few states, incentives, along with payment schemes provided by developers further propelled market growth. In November 2020, Maharashtra state reported the highest number of residential registrations in almost a decade.
Due to 60% decline in stamp duty by the Maharashtra Government, residential properties registration in Mumbai grew over two-fold in December 2020 to 18,854 units. Also, the work from home concept further improved the demand for residential properties. A six-month moratorium was offered on EMIs on all loans, including home purchases, which further had a positive impact on residential market in the country.
Going forward, Tier 2 and Tier 3 cities are likely to witness greater demand for houses. Affordable housing to record robust demand and ready homes are expected to be preferred by customers. Of the various segments, mid-income (INR 45 lakhs to INR 1 crore) and budget (< Rs 45 lakhs) categories home buyers are likely to perform better.
Under the Pradhan Mantri Awas Yojana (PMAY-U) 2021, the government approved the construction of 56,368 new houses. The PMAY-U was launched in 2015 by the Prime Minister of India with an aim to provide housing for all by 2022. The government targets to build 1.12 crore houses in urban areas during 2015-2022 period. As of February 2021, around 73 lakh houses have been grounded and around 43 Lakh have been concluded as part of this scheme.
Some of the other government initiatives include creation of Affordable Housing Fund (AHF) in the National Housing Bank (NHB) with an initial corpus of US$ 1.43 billion (INR 10,000 crore) using priority sector lending short fall of banks/financial institutions for micro financing of the HFCs.
Also, to revive around 1,600 stalled housing projects across top cities, the Union Cabinet sanctioned US$ 3.58 billion (INR 25,000 crore) alternative investment fund (AIF). Further, the Atmanirbhar Bharat 3.0 package announced by Finance Minister Mrs. Nirmala Sitharaman in November 2020 included income tax relief measures for real estate developers and homebuyers for primary purchase/sale of residential units of value (up to INR 2 crore (US$ 271,450.60) from November 12, 2020 to June 30, 2021).
Green homes are also expected to grow in India. The Indian Green Building Council (IGBC) formed by Confederation of Indian Industry (CII) in 2001 enables Sustainable built environment for ALL in India. To enable this, the council launched Green Homes Rating in 2008 for the residential sector.
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