Real Estate

Covid-19: Construction, infra companies stall work

V Rishi Kumar Hyderabad | Updated on March 25, 2020

Delays, cost overruns likely; industry urges relief for workers

The country-wide lockdown imposed by the government to check the spread of cornonavirus has resulted in construction companies announcing a shutdown of operations. This is likely to delay implementation of projects, leading to cost overruns and impacts on the workforce.

Typically, the fourth quarter accounts for about 30-35 per cent of annual revenues for construction companies, and a month’s lockdown could erode 8-10 per cent. This would impact project execution of infrastructure companies and their revenue growth, according to Sudeep Arekar, senior analyst, India Ratings and Research.

With the lockdown, all the construction activity has come to a halt. A large chunk of construction workers are heading to their home-towns and are likely to return only after the situation comes back to normal. The impact of the halt in work will have direct bearing on the company revenues, jobs and project delays.

C Sekhar Reddy, Past National President, Credai National and Convenor, CII-Telangana, said: “After agriculture, the construction, infrastructure and real estate segments are the second-largest employment providers in the country, and they have been affected by the lockdown imposed due to virus breakout. The focus now is on ensuring the welfare of the people employed in the segment.”

“The government had announced that the labour cess collected could be utilised for their welfare. We hope the government comes out with some package for the welfare of those employed in the sector,” Reddy said.

Financial impact

Ind-Ra also observed that the continued expenditure in the form of overheads and finance charges is also likely to affect the profitability of construction companies, owing to a lower base for absorption of these overheads. This will have a significant bearing on their credit profiles.

The slowdown has already impacted the overall pace of project implementation and the current lockdown will have a cascading impact on the projects, companies, employees and the economy.

With the funding woes of the banking sector and the overall fragile economic scenario, the rating agency expects the disbursements and sanction of additional limits to construction companies in the next few months to happen at a sluggish pace.

Both listed companies, including NCC Limited, KNR Constructions Limited, and private firms have stalled all work on the sites.

Impact on stakeholders

“The impact of the lockdown has been adverse for Indian real estate. Our association is supportive of the government measures to contain the spread of the virus. Given that most construction sites have now been closed down, there is a cascading effect on all industry stakeholders, in particular the daily-wage earners who depended on the industry for their livelihood,” Nayan Shah, President, Credai MCHI, said.

“We have stopped all construction activities but are providing financial and medical aid to the workers to ensure they do not suffer during this extremely tough phase for the economy. We are hopeful the newly formed Economic Task Force will come forward with a concrete plan of action to combat this slump and protect the long term interests of industry stakeholders,” Shah said.

According to Prashant Thakur, Director & Head, Research, Anarock Property Consultants, “Another fallout of the lockdown will be zero construction activity at the project sites. This will further strain several developers’ financial health. As many as 15.62 lakh units across the top seven cities were in various stages of construction as on 2019 end.”

“Out of these 15.62 lakh units under construction, nearly 57 per cent or nearly 8.90 lakh units are in MMR and NCR alone. Both these regions already have a backlog of lakhs of delayed/stalled units. With construction activity almost coming to a standstill, homebuyers will have to brace themselves for another wave of delayed project deliveries,” Thakur said.

Published on March 25, 2020

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