Economy

Real estate will remain insulated from effects of a poor monsoon

Manisha Jha Mumbai | Updated on July 31, 2014

A positive job outlook and an improved GDP will keep the sector going





The realty sector in the country does not seem to be affected by the possibility of deficient rainfall this monsoon.

Though there could be a mild negative sentiment, it could potentially be offset with a positive job outlook and an improved gross domestic product expected to fuel demand this fiscal, according to industry experts.

“The sector is still reeling under the impact of the slowdown with overall sales volume being weak but in terms of construction execution we don’t see impact of a possible monsoon deficiency,” said Aashiesh Agarwaal, Realty Analyst at Edelweiss Securities.

“While a weak monsoon impacts rural demand and rural spending power, real estate is an urban phenomenon and though sentiment could be negative, given the uptick in the job market there would be no material impact on the sector considering the low base of poor volumes over the last two years,” he added.

Water is needed for construction material and the lack of it often results in construction delays for developers particularly in under-construction projects. In case of a rainfall deficient situation, the supply of water for construction gets curtailed by the local municipal bodies forcing developers to resort to sourcing water from tankers or nearest water sources such as borewells or talaos.

“Though this leads to additional cost of labour and transportation, the amount is less than 5 per cent of the overall construction cost and does not impact our business much. About 50-60 per cent of our buyers belong to the financial services sector including IT, banking, insurance and stock broking which are not directly affected by the monsoon,” said Sunil Mantri of Mantri Realty.

“But there is an indirect economic impact of it in terms of increase in inflation. If we manage to achieve a 6 per cent GDP in a year then the real estate sector will not be affected by the monsoon as GDP is linked with new job creation which will offset any negative impact,” he added.

Water conservation

Irrespective of the monsoon phenomenon in the country, many developers such as Tata Housing are already engaged in incorporating water conservation technologies and innovations at the building design and construction stage by using water efficient construction materials. Their idea is to speed up the execution process as well as reduce construction costs.

Arun Kashikar, Head, Research and Development, Tata Housing said: “We have started use of AAC blocks polymer plaster, dry walls and pre-cast concrete in some of our projects to replace the traditional brick walls which require larger amounts of water. This has helped reduce water usage by 20 to 25 per cent besides reducing construction time. We have also started rain water harvesting and sewage treatment plants at our township projects to recycle water for flushing and landscaping purposes.”

“Ultimately our aim is to turn into a water-positive company by 2018-19 where we generate more water for the ecosystem than utilise it towards our construction activities,” he added.

Industry outlook

According to Anshuman Magazine, CMD, CBRE, South Asia, with a new government at the Centre and pro-industry announcements in the recent Budget, including liberalisation of FDI in real estate, granting tax pass through status to REIT and earmarking outlays for affordable housing, infrastructure projects and creation of 100 Smart Cities across the country, positive sentiments have flowed into the residential segment.

“Home buyers and investors planning to invest in property are expecting positive policy changes that in turn are expected to boost the housing segment. The housing segment remains cautiously optimistic, and is expected to remain so in the short- to medium-term,” he added.

This is part of a series on how India Inc is responding to the monsoon situation

Published on July 31, 2014

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