The construction industry is divided into 250 sub-sectors, which can be classified into two categories: real estate and infrastructure construction. The Ministry of Statistics and Programme implementation predicts that in the financial year 2022 the construction industry is likely to grow in double digits at 10.7 percent, mainly due to the government’s increased focus on infrastructure projects and gradual increase in residential and commercial real estate demand in the coming year. The industry also expects that the upcoming budget will further focus on investments in infrastructure and capacity building.
According to Samantak Das, Chief Economist and Executive Director-Research and REIS, JLL India, “The financial, real estate and professional services segment is expected to see a 4 percent overall growth in 2022 and this is expected to be driven by investments in the construction and real estate sectors. The other allied sectors like logistics, warehousing and data centers are also expected to fuel construction demand going forward.”
Anuj Puri, Chairman of Anarock Group expressing his views said, “The construction sector contribution towards the GDP has been significant and as we progress further into the year 2022, the initiation of large scale infrastructure projects and increase in the construction activity are going to be significant contributor to the GDP.”
THE POTENTIAL GROWTH DRIVERS
The construction sector will be supported by the government’s plan to significantly increase the stock of PMAY units, AHRC and completing of construction of 23 new highway and expressway projects by FY2024/2025.
The Pradhan Mantri Awas Yojana (PMAY) aims to build around 20 million urban houses and 30 million rural houses by 2022. Recently the construction of an additional 3,21,567 affordable houses was sanctioned under Pradhan Mantri Awas Yojana.
For Affordable Rental Housing Complexes (ARHCs), government has extended credit facility at lower interest rate under Harmonized Master List (HML) of Infrastructure Sub-sectors. RBI too has permitted issuing of long term
bonds by banks for financing of Infrastructure and affordable housing to facilitate faster project constructions. The pickup in the Smart cities schemes in 2022 too, will fuel the urban infrastructure construction.
In the private segment, as per the ICICI Securities report, the residential housing demand is expected to reach pre-Covid levels led by new launches. The industry forecasts are of 5 percent capital value growth for the residential property segment in the country in 2022. Furthermore, as per the hiring trends witnessed in 2021, the Information Technology sector’s leasing will be gaining momentum in 2022, raising pan-India incremental demand for office spaces to nearly 1.08 mn sq meter and net absorption of 26.8 msf in CY22E.
“The Indian construction industry is the key area of global real estate investments, the recovery pace can double fold in the upcoming quarters which will help all the stakeholders to narrow down the loss made in the previous quarters since the Covid-19 outbreak. The volatility is here to stay for a while until industry shows a steady sign of recovery along with other sectors like manufacturing, hospitality, FMCG, infrastructure, leisure and so on,” said MV Harish, Executive Managing Director, Project Development Services, JLL India.
With optimism for the construction industry there comes challenges too which will be affecting the performance in the year 2022. Materials and labour shortages have delayed projects and increased their costs. With third wave predictions, further disruptions are expected causing lockdown like situation in many parts of the country.
The cost of new projects is up by 10-12% while the existing projects went up by 8-9%. The supply chain breakdown is the key reason as the cost of material and its freight account for 50-60% of construction budgets.
The key to mitigating supply chain issues come down to resilience: engagement with suppliers, creating material reserves and developing backup suppliers. This year it will be important to reconsider reliance on foreign made
supplies and just in time materials sourcing making it important to establish local and regional suppliers when possible.
CONSTRUCTION INDUSTRY TRANSFORMATIONS
Like other industries even in construction industry the unstoppable march of technology will continue because there is a lot at stake. The productivity of the construction industry will improve as much as 60 percent by usage of technology that will also address the labour shortage. As per industry experts, the PropTech and FinTech will mark their strong presence in the construction in 2022.
For the construction companies technology means construction machinery, drones, software tools and 3-D printing. Automating manual processes, new technology processes for resource and material efficiency and Pre-fabricated systems are some of the stand-out trends for 2022.
INVESTMENTS FOR THE SECTOR
India’s construction industry offers lucrative investment opportunities for foreign companies as infrastructure modernization, development of ‘smart cities’, improvements to logistics and transportation routes, and affordable housing for all are prominent government mandates. India’s FDI policy also allows 100 percent FDI under the automatic route in the construction sector.
In FY 2021, the construction sector emerged as the second largest sector in terms of FDI inflow, receiving 13 percent share of the total FDI equity inflow to India. Additionally, India’s $1.4 trillion infrastructure investment budget under NIP allocates 19 percent to roads and highways and 16 percent to urban infrastructure.
Sharing expectations from Union Budget 2022- 23, Rajeev Dimri, National Head of Tax, KPMG in India expressed, “Relief for real estate and infrastructure sectors, steps to boost investor confidence and attract foreign investment and to rationalise compliance through increased adoption of technology tools could also be considered for revival.”
THE BRIGHT FUTURE IN 2022
The construction outlook for 2022 is looking positive. ICRA estimates a 15-20% growth in construction equipment segment to continue till CY2023, before moderating in CY2024. The building material industry projected growth rate for 2022 is around 10%, and it is estimated to clock a CAGR growth of 8% to 9% in the next five years. The industry reports also anticipate that by Q2- Q3 2022 the construction prices will stabilize.
Anirban Basu, Chief Economist , Associated Builders and Contractors and CEO, Sage Policy Group stated in one of the industry discussions, “The infrastructure factors in the top of state and local government spending, so we will see a lot of state and local spending on construction going forward. Other factors which will fuel the growth of construction industry in 2022 will be the home demand that will have a positive impact on the construction industry and recovery of manufacturing and supply chains, lowering the prices of materials like steel, copper and aluminium.”
The PwC report also finds the industry well-positioned for the coming year, despite issues such as supply chain disruptions, high material costs and labour shortages. As we move in 2022, construction industry has a big role to play in supporting the nation’s growth plan. The infrastructure Investment and Jobs Act (IIJA) with investments across health care, public safety and other public Infrastructure is expected to bode well for the construction industry. The real estate segment is also expected to stay strong and exhibit heightened construction activity.
AS OF JUNE2021, THE NUMBER OF PROJECTS IN THE NIP HAS RISEN TO 7,973. TO FUND THE NEW PROJECTS, THE GOVERNMENT PLANS TO INCREASE THE SHARE OF CAPITAL EXPENDITURE IN CENTRAL AND STATE BUDGETS AND ESTABLISH A NEW INR200 BILLION DEVELOPMENT FINANCE INSTITUTION, WITH A LENDING TARGET OF INR5 TRILLION OVER THE NEXT THREE YEARS.
THE FINANCE MINISTRY IS CONSIDERING ALLOWING LIMITED LIABILITY PARTNERSHIPS TO INVEST IN THE CONSTRUCTION OF TOWNSHIPS, ROADS, HOTELS AND HOSPITALS IN THE BUDGET TO BE PRESENTED ON FEBRUARY 01.