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The fortunes of some major commodities like steel, aluminium, copper and cement are closely linked to the performance of the real estate sector. The pace of development of commercial as well as residential properties is in turn linked to the behaviour of the economy over a long stretch and also market sentiment. Consulting firm PwC confirms this in a report on the construction sector, of which real estate is a part, next to infrastructure, investment-wise but miles ahead of industrial construction. The sector's importance to the economy is underpinned by its nearly eight per cent share of gross domestic product. As things stand, a housing project will need 55 approvals from local self-government, as well as state and central government departments. Builders are, therefore, constrained to provide for up to 24 months to wrap up all the compliances.
Economic performance in the last two years could not have boded well for either the real estate sector or commodities used in construction. The portents for the economy are still not encouraging. The Organisation for Economic Cooperation and Development (OECD) has found reasons to scale down its Indian growth projection from 5.9 per cent to 5.3 per cent during calendar year 2013. At the same time, OECD sees better economic prospects for the country in 2014 linked, however, to clearances of a host of big investment projects, foreign direct investment (FDI) pick-up and monetary policies easing. In fact, demand fall for new housing stock, from affordable to mid-range to luxury segment has got much to do with the Reserve Bank starting to raise policy rates since March 2010 for taming inflation.
Difficult economic conditions in the past two years notwithstanding, the real estate sector has seen much activity in the past decade, thanks to the pressure building on the government to mitigate urban housing shortages. A report by the Federation of Indian Chambers of Commerce and Industry says the inexorable progress in urbanisation will see addition of "900 million people to Indian cities by 2050". In the decade ended 2011, the country saw its urban population rising 32 per cent from 285 million to 377 million. This resulted in rise of urbanisation from 27.8 per cent to 31.2 per cent. According to Credit Suisse, from here to 2050, progress of Indian urbanisation will be at a compounded annual growth rate (CAGR) of 2.1 per cent, double that of China. Migration from rural areas will cause much strain to urban infrastructure, which now is far from ideal, specially housing. The technical urban group of housing ministry estimates housing shortages at "18.78 million households in 2012".
The findings show a pitiable housing scene for "economically weaker sections and lower income groups". Besides those living in decaying structures, 80 per cent of households find themselves in highly congested conditions. They are in urgent requirement of new houses. Nearly a million households are living in "non-serviceable katcha houses and over half a million households are in a homeless state". Creation of satellite townships on the lines of Gurgaon and Noida through the public private partnership route will no doubt bring major relief. At the same time, many disturbing real estate issues will be taken care of once the Real Estate (Regulation and Development) Bill becomes an Act. "Housing will get a shot in the arm with consumers getting a fair deal in all transactions with the Bill promising to end all bewildering practices now rampant in the sector. Remember, house starts are seen as bellwether of the US economy. This is also going to be the case with us once we rid the sector of practices short-changing home buyers. New townships, house building and infrastructure development go hand in hand, all creating demand for steel and other building materials. Also, expect spurt in NRI (non-resident Indian) property buying, taking advantage of rupee depreciation. Transparency in real estate dealings will be a comforting factor for NRIs. Steelmakers are praying for much higher levels of construction activity," says SAIL Chairman C S Verma. The sector is a big job creator, requiring a variety of skills.
