Sharp rise in prices and interest rates have affected the real estate sector adversely. According to a survey, the slowdown in the realty sector is likely to bring down its contribution to the GDP to below 8% in 2011-12 as against 8.1% in the last fiscal year.
According to a survey conducted by industry body Assocham among the industry players, the slowdown in the sector is mainly due to an unregulated price hike in key construction material, together with rampant shortage of workforce at all levels.
“Domestic construction industry has been jostling with steep and steady rise in prices of cement, steel rods, bricks and other input material, which have risen by over 30% since 2009,” Assocham said in a statement.
The industry is also facing severe shortage of about 40% skilled construction workers. Because of this, construction projects are getting delayed or cancelled all over the country, revealed the study, “Current trends in Indian construction industry” .
The input cost on account of labour in the construction industry has increased by over 30% during the course of the past couple of years, according to the study. “Inflationary pressures leading to an abnormal price rise in food and basic cost of living have pushed the wages upwards. Besides, depletion of migratory workforce owing to improved locally-generated employment opportunities from government welfare schemes have led to scarcity of labour and increased costs,” says D S Rawat, secretary general of Assocham.
Steel, cement and labour are the key components and they alone make for almost 75% of overall construction cost, points out the study. “Increase in costs are largely due to rising global demand for goods and commodities , besides ever-increasing transportation and energy costs that are collectively responsible for such a hike in the sector,” Rawat says.
The study is based on a survey of around 1,500 players from the industry, including contractors, developers, building material manufacturers, traders and real estate consultants to ascertain the impact of soaring construction prices and labour deficit on India's real estate and construction sector. The survey was carried out at Ahmedabad, Bangalore, Chandigarh, Chennai, Delhi-NCR , Hyderabad, Kolkata, Lucknow, Mumbai and Pune, between April and August.
About 60% of respondents said that upward spiralling costs of significant construction materials has been putting a great pressure on project execution as they find it difficult to keep their margins intact. “Construction material manufacturers and traders are not only coping with eroding profit margins but, their stocks have also reportedly lost the market capitalization by 15% to 20% over the last four to five months,” the survey says.
During April-June 2011, the realty sector saw a revenue growth of 8.7% as against the same period last year. But, because of rise in input cost and interest rates, their profit declined by 19.5% from the corresponding period last year.
Over 25% of respondents said that labour crunch is the biggest hurdle in their development as they are grappling with shortage of skilled labour since, various government projects like Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA ) are encouraging migrant labourers from states like Uttar Pradesh, Bihar, Madhya Pradesh and Rajasthan to shift from private employment.
“Introduction of technology like pre-fabricated buildings, brick-less technology is a feasible solution to aid faster construction and counter the labour crunch faced by the industry, considering the labour-intensive nature of the construction practices across India,” Rawat says.
Besides rising prices, sharp rise in lending rates by banks has hit the realty sector severely, a majority of the construction material manufacturers and traders said, adding that instead of passing on the raise in raw material cost to end consumers, they are cutting down the production.
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