Build in India: Inside the great construction boom

The drive is dusty and slow during office hours. Nonetheless, many commuters found relief when the Whitefield-Challaghatta Purple Line of Bengaluru Metro opened up this year. It connected the eastern and western parts in a 76-minute ride.

The opening of the metro line signalled a turnaround for Whitefield, a corridor plagued by oversupply and slow home sales during the pre-pandemic real estate slowdown. Construction activity has picked up now and public capital expenditure is crowding in private sector participation here. Private developers are actively looking for and buying land near the metro stations.

“Construction activity and launches have been strong in Whitefield and Sarjapur Road (another tech corridor) and will further pick up with metro connectivity. We are looking to acquire more land here, and will launch more projects," said Praveer Shrivastava, senior vice president, residential, Prestige Group.

In the past two years, the Prestige Group has sold nearly 12,000 homes in Whitefield and Sarjapur Road, worth ₹15,000 crore.

Whitefield, in short, is a microcosm of the huge spurt in construction across Indian cities—even in smaller towns. The evidence is in numbers. The construction sector grew 13.3% in the September quarter of 2023-24 from a year earlier in terms of gross value added (GVA), estimates from the National Statistical Office, released on 30 November, showed. About 15,68,281 residential units were under construction in the top seven tier-1 cities between April-September 2023, as per Liases Foras Research, a real estate research company.

In the years leading up to the pandemic, the pace of real estate construction was slow. Developers faced weak sales and cash flows leading to huge project delays. And then, during the pandemic, most construction activity came to a standstill.

The pick-up in construction started in the last quarter of 2021, gained some momentum in 2022, and further pace in 2023.

What led to this spurt? An ongoing residential real estate boom. As companies started asking employees to head back to the office after allowing work from home during the pandemic years, the demand for homes in cities shot through the roof. On the other hand, transport infrastructure projects have picked up pace, too.

“This year, the maximum construction activity in infrastructure is in railways and highways/roads. About 40% of the Union budget for infrastructure ( ₹10 trillion) was allocated towards these sectors. Projects that were going slow till 2022 have picked up significantly. There is also huge construction on the Smart Cities Mission front," said Kushal Kumar Singh, partner at Deloitte India, a consultancy.

In some ways, the current boom in India is similar to the rapid growth the Chinese construction market saw in the 2010s. Construction expenditures benefited from growth in government–funded infrastructure construction projects. “The Chinese government has realized the importance of developing transportation infrastructure as a key part in sustaining the country’s economic growth and, to this end, the government has recently announced a budget of $543 billion for transportation infrastructure projects in its eleventh five-year plan. This includes roads, bridges, ports and railways," advisory firm PWC had noted in a 2008 paper.

In India, construction activity in housing and third-party logistics is growing faster than infrastructure at the moment, Singh of Deloitte added.

“Mumbai, Pune, Hyderabad and Ahmedabad are leading in home launches and construction activity," said Pankaj Kapoor, managing director, Liases Foras. “In the 2005 real estate boom, prices and launches peaked, but sales and construction were not in sync. Today, it’s a prudent market, and governed by RERA. Builders are launching projects but also constructing aggressively," he added.

RERA or the Real Estate (Regulation and Development) Act, 2016, seeks to protect home-buyers while helping boost investments in the real estate industry.

The boom in construction is great news for sectors that feed the industry—such as steel and cement. And it creates jobs mopping up the workforce at the bottom of India’s labour pyramid. The construction business, the second largest employer after agriculture, is expected to employ 100 million by 2030 from the current 70.6 million, estimates Knight Frank India, a property advisory. In economic terms, the output generated from India’s construction sector is estimated to grow to $1 trillion by 2030 from about $650 billion now, the company estimated.

Home rush

First, let’s delve deeper into the housing boom.

While a record number of project launches is boosting construction across cities, it is important to look at the project completion data to understand the scale. In 2022, about 400,000 housing units were completed in the top seven cities compared to less than 300,000 units in 2019, data from Anarock states. In January-September this year, 274,000 units were completed.

“Unsold home inventory is at an all-time low. Homebuyers are more discerning and developers know that they need to construct fast for better sales and cash flows," said Prashant Thakur, regional director and research head at property advisory Anarock Group.

Leading property developers are also entering new cities leading to a further expansion in construction. Bengaluru’s Shriram Properties Ltd, which has 13 ongoing projects, plans to close 2023-24 with 11 new launches, and enter the Pune market. “We are starting construction on a project within six months of its launch, without delay," said chairman and managing director M. Murali.

Similarly, Bengaluru’s Puravankara Ltd launched 3.46 million sq. ft in the first half of this year, and has a launch pipeline of another 12.42 million sq. ft in the latter half of 2023-24, across multiple cities.

The country’s hottest property market, the Mumbai metropolitan region (MMR) currently has 592,650 residential units under construction, the largest share among all cities.

MMR’s largest developer Macrotech Developers Ltd has 33 ongoing projects and is aiming at 50 projects in two-three years. “We’ve expanded into new locations in the eastern and western suburbs in Mumbai, and Pune. This expansion has not only increased the number of projects but also scaled up our construction activities," said chief sales officer Prashant Bindal.

Beyond metros

It’s not just the tier-1 cities that have witnessed a spurt in construction. Smaller cities have been the beneficiaries of major infrastructure investments as well.

Take Ahmedabad for example. The city has seen a huge boost in real estate construction, overtaking metro cities like Chennai and Kolkata by a wide margin. As of September, Ahmedabad has 130,000 residential units under construction compared to 75,550 units in 2018-19, according to Liases Foras.

Chennai and Kolkata have 71,344 units and 70,064 units under construction, respectively.

Around 13,375 units were launched in Ahmedabad between April and September this year. That is nearly similar to the 13,846 units launched in the national capital region (NCR) during the same period, which was the largest property market till a few years back.

“Significant infrastructure development has happened in Ahmedabad boosting connectivity. Newer areas are getting included for planned city expansion, which also creates new real estate locations. With the metro line reaching GIFT City in Gandhinagar, surrounding areas will also benefit," said Kamal Singal, managing director and chief executive at Arvind Smartspaces Ltd, the real estate arm of Arvind Ltd.

Like Ahmedabad, Nashik in Maharashtra also saw a spurt in construction aided by a slew of new infrastructure projects.

Speeding infra

Meanwhile, large public infrastructure projects, smart city developments and the growth of India’s warehousing sector are also boosting construction activities.

The 21.8-km Mumbai Trans Harbour Link (MTHL), India’s longest sea bridge connecting Mumbai with its satellite city Navi Mumbai, is expected to open early next year.

“Infrastructure projects like MTHL are likely to create future development in the island city’s eastern belt, which is mostly an industrial stretch. The new coastal road will reduce commute time and benefit areas like Juhu and the suburbs," said Ramesh Ranganathan, CEO, K Raheja Corp Homes.

The new metro lines in Mumbai, connecting the distant parts of suburban Thane to the city, may lead to residential and office demand in these locations.

Not just Mumbai, many cities—Delhi, Chennai, Hyderabad, Ahmedabad, Bhopal, Indore, Kanpur, Surat and Patna—have metro projects under construction. About 895 km of metro network is operational in 20 cities today, from just 248 km in 2014, Hardeep Singh Puri, minister of housing and urban affairs, recently said.

With improving transport connectivity and demand from e-commerce, auto, manufacturing and retail, cities such as Lucknow, Coimbatore, Ghaziabad, Bhubaneshwar, Ludhiana and Patna are also emerging as major warehousing hubs. Grade A and B supply in the warehousing and industrial sector—A being the highest standard—is expected to reach 516 million sq. ft by 2026, from the 344 million sq. ft as of June 2023, property advisory JLL recently noted.

The impact

Like we mentioned earlier, industries closely related to infrastructure—such as cement and steel—are direct beneficiaries of the boom.

The demand for steel in India is expected to register a growth of 8.6% compared to the overall global rise of 1.8% in 2023, and is expected to continue its high growth momentum, industry body World Steel Association said in October.

Cement volumes, meanwhile, are expected to rise by 9-10% in 2023-24, supported by demand from infrastructure and urban housing sectors, rating agency ICRA said in October. In the first half of the year, volumes rose by 11-12% year-on-year.

Shree Cement Ltd, a supplier to housing and infrastructure projects like highways and refineries, has earmarked ₹7,000 crore to expand capacity from the current 50 million tonnes per annum to 70 million tonnes per annum by 2028.

“Cement consumption is closely linked to housing demand. Rising urbanization, urban migration and housing shortage have all led to a surge in demand, and impacted the cement industry. The demand for larger homes, more amenities post-pandemic is driving housing demand," said Neeraj Akhoury, managing director of Shree Cement. Real estate is currently outperforming the infrastructure sector, Akhoury added.

Anuj Khandelwal, business head, grey cement division, JK Cement Ltd, said that in the last two years, tier II and III cities as well as rural markets have witnessed disproportionate growth in residential construction and, thereby, increased cement consumption. Construction growth across the rural markets in Uttar Pradesh, Rajasthan, Madhya Pradesh and Maharashtra have also seen growth in the building of independent houses.

Between 2017-18 and 2022-23, JK Cement has more than doubled its capacity—from 10 million tonnes per annum (MTPA) to 20.7 MPTA.

“Government housing programs like Pradhan Mantri Awas Yojana (a scheme that facilitates access to affordable housing), favourable demographics and a lot of activity in infrastructure projects have propelled this demand further. Cement demand in 2023-24 is expected to end with 10-11% growth given the pre-election momentum and this has also played out in the first half of the year," Khandelwal said.

Will this continue?

The question is if the momentum in construction can continue next year.

Some experts said that the pace of construction may see a blip next year, as fresh investments and project sanctions may be put on hold for some time due to the general elections. Highway construction activity could slow.

“Next year, highway construction activity is likely to slow down as the National Highways Authority of India has been asked not to award any new project till the revised approval for Bharatmala Pariyojana is in place," Deloitte’s Singh said.

Bharatmala Pariyojana is the central government’s umbrella programme to develop the highways sector.

Second, metro rail projects are likely to slow down as well. While many cities have ongoing metro rail projects, no new projects have been announced in the last three years, Singh said. “There is a consensus that these projects are a costly affair. However, there are rapid passenger transport projects and new proposals to improve connectivity being floated," he added.

On the other hand, some market watchers remain hopeful, particularly about the continued growth of the housing sector. Liases Foras’ Kapoor estimates that India has added nearly 1,000 new developers in the last two years, implying that the market is only expanding. Thakur from Anarock said that in the first half of 2023-24, nearly 25-30% of cash collected by most listed developers in India has gone into business development—land acquisition for future launches.

The implication? Construction activity will continue at the same pace. The more optimistic would tell you that the pace will further accelerate.