With consolidation in the steel sector, the cement majors expanding capacity and with relatively stable oil prices, India’s massive infrastructural thrust promises to make 2019 a leap year for all stakeholders in the construction industry
It is an exciting time to be a part of the construction ecosystem. In the first week of the new year, Minister for Road Transport & Highways, Shipping and Water Resources, River Development & Ganga Rejuvenation Nitin Gadkari communicated through a written statement in Parliament that the government has approved the National Highways Authority of India’s (NHAI) plans to raise Rs 62,000 crore for the Bharatmala Pariyojana through various instruments. This together with the Sagarmala Pariyojana (150 mega initiatives with a projected outlay of Rs 4 lakh crore) and the creation and new metro rail networks in 14 cities across India and other civic infrastructural upgrades of which the maximum (at various stages of actualization) are in the Mumbai Metropolitan Region.
The Department of Industrial Policy and Promotion (DIPP) puts the construction development sector FDI equity inflows at US$ 24.87 billion in the period April 2000-June 2018. Along with these positive factors, the NBFC crisis, the resultant liquidity crisis, sluggish demand in the residential sector, and the pain of transitioning to the new GST regime and the ongoing bumps as developers submit to the stipulations of Real Estate (Regulation and Development) Act (RERA) also present challenges that have to be met in the year ahead. Notably, the year gone by has been good for Building Material and Original Equipment Manufacturer (OEM) segments. The latter clocked their highest sales in 2018 and expect the numbers to be at least as good in 2019. Here is how the next 12 months look like to experts in the four broad segments that comprise the construction ecosystem:
Real Estate, Infrastructure, Building Materials, and OEMs.
Nearly every major cement manufacturer is responding to the infrastructural thrust by increasing production capacity to service the anticipated demand. The country’s new steel policy has already propelled India closed to the position of the world’s second largest producer of steel overtaking Japan with China, which is securely on the number one spot accounting for over 50 percent of the world’s steel. Mahendra Singhi, the president of the Cement Manufacturers’ Association, has said that he expects FY19 to see a healthy 8 percent growth in demand and the next five years and more to be ‘positive’. India is the world’s second largest producer of cement. Oil prices are expected to be volatile in the upcoming months as the Indian economy feels some heat from the ongoing China-US trade war.
While heavy investments are being made in developing infrastructure across India, the Mumbai Metropolitan Region region, which remains the business powerhouse of the country, is presently dealing with what has been described in urban transport terminology as a superdense crush load. In other words, peak-hour train carriages in Mumbai that are built for 200 passengers carry over 500, which is a mind-boggling 14–16 people per square metre. Till November 2018, 650 passengers had died from falling off trains across the city last year. The Mumbai Metro Rail Project under the captainship of Ashwini Bhide, the Managing Director of the Mumbai Metro Rail Corporation, is trying to change how Mumbai commutes. Even as you read these lines, over 8,000 workers are operating a fleet of 17 360-ft-long boring machines that are at work 24X7 to finish the 27-station, 21-mile subway through South Mumbai, which is one of the most densely populated areas in the world. Bhide had decided to continue despite heavy rains in order to ensure timely delivery by pressing 200 pumps into service to drain the rainwater. Prime Minister Narendra Modi has gone on record to say that the intention is to build 170 miles of metro rail network in the city by 2024. These improvements are expected to provide relief to over an estimated seven million commuters who use the city’s suburban railway network.
The 12 lines of metro rail in Mumbai coupled with the coastal rail project (survey underway) that proposes connecting Marine Lines in South Mumbai to distant Kandivali with an eight-lane 29.2-km long freeway along the city’s western coastline at a cost of 150 billion is expected to be completed in the same year. The Mumbai Trans Harbour Link (MTHL), the six-lane 21.8 km, the longest sea bridge in India, will be linked to the Mumbai Pune Expressway in the east, and to the proposed Western Freeway in the west at an estimated cost of 14,262 crore (US$2.0 billion). Work on the project has already commenced in April 2018 and is scheduled to conclude in a little over four years. MMRDA estimates that 70,000 vehicles will use the bridge on any given day.
Fifteen cities are in the middle of a metro rail creation spree with a dozen more in various stages of planning. On the last day of the year gone by, the first metro train of three coaches was delivered to Ahmedabad. The National High-Speed Rail Corporation Limited’s (NHSRCL) Mumbai–Ahmedabad high-speed rail corridor is another parallel development that will change the way the city commutes. Presently in the land acquisition stage, will connect the industrial/ commercial hub of Ahmedabad in Gujarat to India’s economic powerhouse Mumbai, Maharashtra. Japan Railways Shinkansen E5 Series Electric multiple unit will be used for rolling stock to cover the distance of 508 km at an estimated cost of Rs 1.1 lakh crore. The project finance of Rs 88,000 crore is being provided by the Japan International Cooperation Agency (JICA) at 0.1% interest, which has to be returned over 50 years, and is expected to create over 13,000 Jobs.
Highways, his way
Nitin Gadkari is the man behind India’s unprecedented infrastructural expansion plans. Among his big projects is the Delhi-Mumbai Expressway, which promises to cut the travel time between Mumbai and Delhi from the present 24 hours to 12 hours flat with a spend of Rs 1 trillion earmarked for the project, work on which is scheduled to begin in March 2019. He is also lending his heft to the Mumbai-Nagpur Super Communication Expressway or the Samruddhi Mahamarg, a 701km-long, eight-lane expressway that is to pass through some of the most impoverished areas in 10 districts of Maharashtra, and cut travel time between the two cities to eight hours from the current 15 hours. The project, which is considered a pet project of CM Devendra Fadnavis, which is estimated to cost Rs 46,000 crore, and is currently in the land acquisition stage. Gadkari is pushing, prodding and encouraging the NHAI to make Bharatmala, which envisages an addition of 60,000 km to India’s road network, a reality at the rate of over 20 km a day, and he is not averse to going beyond budgetary allocations to tap the capital market through issue of NHAI bonds to fund the expansion. The NHAI plans to raise an additional Rs 10,000 crore through Bharatmala bonds. Till date, a sum of Rs 41,170 crore has already been raised by NHAI.
Sea of possibilities
A series of 150 major projects to leverage the country’s coastline and inland waterways for industrial development, the Sagarmala project
has a total outlay of 4 lakh crore for modernising port infrastructure, adding six new ports and enhancing capacity of existing port network through the creation of dedicated rail corridors, freight-friendly expressways and inland waterways. The project also envisages the creation of 14 Coastal Economic Zones and a Special Economic Zone at JNPT, Mumbai. Fishermen and other coastal communities will be upskilled so they can benefit from the projects executed. The Special Purpose Vehicle created to oversee the project, The Indian Port Rail Corporation (IPRC), has already undertaken 32 projects costing around Rs.18,233 Cr, and the project time line has been reduced from 10 to just five years. A similar project now called the Port of Shenzhen (Actually a collective name of a number of ports along parts of the coastline of Shenzhen, Guangdong, China), is today one of the busiest and fastest growing container ports in the world. Shenzhen Port has created an estimated seven million jobs since 1978 and improved the city’s GDP 50 times to $180 billion.
Gadkari has publicly announced that he plans to ensure that all vehicles run on electricity by 2030. His case for the use of ethanol, CNG and biodiesel for now has resulted in the introduction of e-rickshaws and of public transport running on biodiesel, is a strong signal to the OEM sector on the trajectory of his thinking.
The minister has set a deadline for cleaning the Ganga river completely by March 2020 with the waste being sold to civic bodies to produce bio-fuel for public transport in areas near the Ganga.
Real estate blues lifting
Anuj Puri, Chairman, ANAROCK Property Consultants, expects a possible GST rate cut at the very beginning of 2019 to bring in the much-needed respite for the Indian residential sector, which is still reeling from reformatory changes. “Though data indicates that sales numbers picked up by nearly 16% in 2018, sales are still far from their peak levels. The ongoing 12% GST rate levied on under-construction properties has proved to be a major deterrent for home buyers, who understandably shied away from this added burden on their finances. Our consumer sentiment survey also confirms that the prevailing GST rate has prevented as many as 49% of property seekers from buying under-construction homes liable for GST. They preferred ready-to-move-in homes that were exempt from this tax,” Puri said in a recent report.
Shantilal Kataria, President, Credai – Maharashtra, has called 2018 ‘a mixed basket for the real estate sector’ though he admits that the sector witnessed a 16 percent rise in housing sales in the last 12 months. He has added that ‘the signs are encouraging and that he expects the ‘momentum to continue into 2019’.
Ashish R. Puravankara, Managing Director, Puravankara Limited, says he predicts a shift of focus to technology in 2019 for both home buyers and developers. “The concept of smart homes will gather momentum as today’s home buyers prefer cloud connected homes, particularly in metro markets. The developers will align themselves with ‘Proptech’. As the role of technology in construction, data gathering, artificial intelligence, and machine learning will be seen in the sector like never before. With the evolving customers’ requirements the focus would be on customer centricity and customisation to meet the changing needs of the end-user,” he said.
Dr. Niranjan Hiranandani, National President, NAREDCO,says the residential segment continues to face challenges due to the rippling effect of liquidity crisis caused by the NBFC blow. “Locking up of 70 percent funds in escrow and postponement in logging sales to save tax burden on under construction property has created an urgency to source out alternative fund avenues for the on-going projects and relieve the liquidity-starved sector on priority. As we stand on the cusp of 2019, we look for some sort of magic to conjure up funds and ensure the sector remains work in progress,” says Hiranandani.
In conclusion, the overall outlook appears to be upbeat despite challenges posed by external factors like the northward surge of oil prices, the US-China trade tussle and monetary tightening by the Trump administration. A CII statement summarized the outlook as positive and said it is ‘buttressed by strong drivers emanating from services sector, infrastructure, construction equipment and better demand conditions arising out of election spending.’
Co-working, warehousing and logistics
Big players of the residential real estate world are entering the $260-billion Indian logistics sector with the doing away of excise and the introduction of the Goods and Service Tax (GST). The list includes Prestige Group from Bengaluru and the Mumbai-based Hiranandani Group (Has announced intention to invest Rs 25 billion in the warehousing and logistic space and expects warehousing to become 10 percent of its total business in 18 months) and Lodha Group who are keen to service the e-commerce retail sector that is generating huge demand for warehousing in the industry. Office space absorption grew by more than 20 percent last year and there are now over 200 players in the co-working space today who run about 1,000 co-working spaces according to a recent report by consulting firm Bain and Company and the Indian Private Equity and Venture Capital Association, and the numbers are big enough to several big names in real estate sector,and some like the Embassy Group who have already taken the plunge.
The employment of FASTag, the radio frequency identification (RFID) technology that allows making of toll payments directly from prepaid or savings account as one drives through a toll plaza without stopping will now be available at all petrol pumps.
an overview in Figures
Rs 5.97 lakh Amount allocated for creating new infrastructure sectorin last budget
Rs 1.48 trillion Highest ever allocation for railways in the budget
Rs 10,000 crore Allocation for telecom infrastructure in 2018-19
Rs. 2.05 lakh crore Investment in smart cities mission in 2018-19
50,000 kilometres Target highway network is expected in 2019
2020 Year India’s GDP could overtake Britain & France