The great Indian construction slowdown
2 min read . Updated: 10 Oct 2017, 03:04 AM ISTThe stalling rates in real estate projects is hovering near a nine-year high
India’s construction sector appears to be facing its worst slowdown since 2008. For three consecutive quarters, the stalling rate in the realty sector has been in double digits, with the total value of stalled realty projects touching Rs1.27 trillion in the September quarter.
The stalling rate (or value of stalled projects as a percentage of projects under implementation), at 12.7%, was at its third-highest level in nine years, only marginally better than in the June quarter, when the stalling rate hit a nine-year high of 13.3%. The commercial real estate sector has been the worst-hit, with a fifth of such projects getting stalled.
The calculation of the stalling rates is based on the capex-tracking database of the Centre for Monitoring Indian Economy (CMIE). The database provides data on a reasonable sample size (at least Rs10,000 crore worth of projects) from June 2008 onwards. Hence although the database has data on projects since June 1995, only the data since June 2008 has been considered to ensure a consistently large sample size.
The data shows that new projects have come to a grinding halt in the real estate sector.
The slowdown in the sector appears to be driven by several recent policy moves which have been inimical for the sector, at least in the short run. Given that most real estate deals have a cash component, this was one sector that had been expected to be hit by demonetization. The impact was felt most strongly in the March quarter.
All of these moves could potentially transform the real estate sector by bringing large swathes of realty projects within the fold of the formal sector over the long run. However, in the short-run, these moves have had a destabilizing effect on a sector which has created the largest number of non-farm jobs for India’s growing workforce over the past decade.
