India’s real estate sector is expected to grow post the pandemic as people prioritise security and safety of homes and social spaces. The revival of real estate construction will boost demand for structural steel products such as rebar.
In the next few months, there may be a dip in the growth of real estate sector, but the sector will emerge as housing remains a basic necessity and also a safe investment instrument, said Surendra Hiranandani, CMD, House of Hiranandani.
Construction and real estate sectors consume close to 60pc of the steel produced in the country. Rebars or TMT bars support most reinforced cement concrete (RCC) structures used in foundation, columns, beams or slabs of buildings and urban infrastructure. The consumption of rebars in India is estimated at about 24mn mt per annum.
Major steel mills in India are operating at around 50-60pc utilisation rates, while smaller steel producers are running at 30pc capacity, amid weak demand. The steel industry is awaiting a ramp up from real estate sector to increase production and improve sales volumes as well as margins.
In an interview to Davis Index, Hiranandani said the Indian real estate sector has faced several ups and downs over the past few years. Before the pandemic, some green shoots were emerging for the real estate industry after facing headwinds due to reformatory measures and liquidity crisis, the sector is now confronted by COVID-19 which may have a considerable impact.
Availability of labour and raw material are the major challenges faced by the sector. Even as the government has allowed construction activities in few regions, the reverse migration of labourers and breakdown of construction material supply chains have adversely affected real estate projects. The manufacturing industries which supply key construction materials including steel, cement, admixtures are also facing shortage of workers and raw materials which has escalated costs up by 20-25pc, said Hiranandani.
In the next few months, there may be a dip in the pace of the sector with fewer launches and extension of project completion deadlines. Real estate developers with a strong track record would benefit from both, the demand revival as well as the consolidation in the industry. There could also be a strong revival of investments into real estate. Housing remains a basic necessity and demand will continue to exist once the situation normalises, stated Hiranandani.
As part of the financial stimulus, the Indian government has extended the credit-linked subsidy scheme (CLSS) for affordable homebuyers until March 2021. Also, the Reserve Bank of India has cut the repo rate to 4.0pc which could lower loan rates for homebuyers and improve residential sales.
The current scenario offers excellent investment opportunities for homebuyers and NRIs in residential real estate as affordability is at all-time high. Real estate will emerge as a silver lining due to the stability, security and safety it offers as an investment instrument. As the sector contributes 6pc to the country’s GDP and generates the highest number of employment opportunities, we are hopeful that the government will continue to take all the necessary actions in the near future for the sector and betterment of the overall economy, said Hirandani.