15

Real estate is in crisis. With the domestic financial crisis gripping almost the entire Indian market, how could India’s property market remain insulated? The slowdown has forced home-buyers and investors to remain in the wait-and-watch mode. The slump in the residential property market has also left many builders struggling to repay loans to shadow lenders - housing finance firms outside the regular banking sector that account for over half of the loans to developers.

The Indian real-estate market is expected to touch $180 billion by 2020. With planned investment in real estate and infrastructure, allied segments like steel and cement industries will likely witness expansion. However, the current slowdown in the real estate sector paints a slightly worrying picture for its allied industries.

Talking about the crisis, Pradeep Purohit, Senior Vice President, Star Cement, told BE, “Slump in the real estate sector has certainly affected the industrial demand. We have faced problems, especially, in the month of Sep-Oct, the season used to pick up but this year it did not in comparison to previous years. With the slowdown, more and more construction companies and certainly cement is facing the problem of curtailing their production. The industry is facing tough time but because of the delta effect the north eastern part where we are located is not as much affected as the central part of the country. So, fortunately for the allied industries, the development will continue to take place at least in the north east even if there is a scarcity of demand.”

Muted growth in cement industry

Cement is manufactured through a closely controlled chemical combination of calcium, silicon, aluminium, iron and other ingredients. It has a shelf life of around three months. According to the Bureau of Indian Standards (BIS), cement cannot be sold after three months without giving proper notice. Thus the demand slowdown for cement affects the supply side very quickly as no inventory build-up can be allowed.

With 460 million tonnes per year (mtpa) of cement production capacity as of 2018, India is the second largest cement producer in the world and accounts for over 8% of the global installed capacity, as of 2018. The production of cement stood at 28.08 million tonnes, as of July 2019. The cement production capacity is estimated to touch 550 MT by 2020. The growing demand had led to huge investments, both from Indian as well as foreign investors.

But with the crisis in real estate, which consumes two-thirds of India’s cement production, the industry witnessed muted growth. Cement output grew by only 1.2% due to the crisis. In order to help the private sector companies thrive, the government has been approving their investment schemes. The demand of cement is further expected to grow annually because of focus on investment for different sectors like real estate, commercial and industrial construction. The affordable housing push and the recent announcement of alternate funding will also boost the demand for cement in the housing segment.

Concerns of steel industry

The demand for steel is witnessing its slowest growth in three years. Manufacturing segments like steel completely rely on government spending for growth. The government’s focus on infrastructure creation and push for affordable housing may be the driving forces for the demand of steel. Alternatively, the automobile sector is also going through a slowdown. However, the auto sector contributes less than a tenth of the steel consumption in India, with more than 60% coming from construction and infrastructure. As the government plans to spend Rs. 100 trillion on infrastructure in the next five years and build nearly 20 million affordable homes in the next three years, the industry will witness demand.

For the past decade, the construction sector has largely been dominated by the thermo mechanically treated TMT bars (rebars). SRMB was the first domestic secondary sector steel company to produce thermo mechanically treated TMT bars in 2000. The consumption of rebars in India is currently estimated at about 24 mtpa and valued at about Rs. 1.2 trillion. Looking at its annual market, it can be assumed that it is an important element of our infrastructure. There is hardly any research available on these bars. There have been reports of widespread use of inferior quality TMT bars. Rebars form the backbone of any reinforced cement concrete (RCC) structure, whether it is foundation, column, beam or slab. The quality of these bars is critical in defining the overall quality of the structure. The widespread use of inferior quality rebars risks infrastructure and real estate investments.

Sanitary ware and tiles market growing fastest

Indian tiles and sanitary ware markets witnessed growth due to rising sanitary awareness. The country is emerging as a sanitary ware manufacturing hub due to abundant availability of raw materials and low labour costs. Several domestic manufacturers such as HSIL, Cera India as well as overseas manufactures such as Roca India, Kohler India, and Toto India have set up manufacturing facilities in the country. The market was worth $ 6,527.6 million in 2018. The market is further projected to reach a value of $11,438.5 million by 2024, growing at a CAGR of 9.8% during 2019-2024.

With the government approved construction of over 3.18 lakh more affordable houses in urban areas and Swachh Bharat Abhiyaan, the move has boosted the market of sanitary wares including the tiles industry. The ceramic tiles industry is likely to register a double-digit volume growth by FY20. Report prepared by Elara Capital shows that nearly 62% of incremental demand in FY20 would come from the price-sensitive segment. This should result in higher demand for low-to-mid-priced products such as polished vitrified tiles (PVT) and ceramic tiles.

Prospects of the paint industry

The Indian paint industry is poised to grow at a healthy rate and is expected to reach around Rs. 70,000 crore by 2021-22. It is expected to grow at a CAGR of around 12% during 2018-19 to 2021-22 in value terms. The implementation of GST regime was a challenge. Later, with the reduction of GST rates from 28% to 18%, the players could heave a sigh of relief. The fiscal incentives given by the government to the housing sector translates well for this industry. It is expected to witness higher growth in future.