The construction industry, which is the second-largest employer in the country after agriculture, has been impacted significantly due to the ongoing pandemic situation. The outbreak has affected not only the people working in the sector but also the customers and investors.
The outburst of novel coronavirus has deeply impacted the complete spectrum of the real estate industry, including residential, commercial, retail, and construction segments. The construction industry is facing a plethora of setbacks due to labour migration, limited supply of raw materials, and general scare revolving around the spread of COVID-19. At the same time, the halt in construction activities has put forward several challenges before the customers/investors who have invested their savings, expecting timely delivery of projects.
Before the COVID-19 situation, the construction industry was recovering from a few minor issues related to policy changes (RERA), changes in taxation (GST), and demonetisation. The industry exhibited good signs of recovery post the announcement of multiple schemes by the Government of India, such as Pradhan Mantri Awas Yojana (PMAY), SBI-CAPs, and one-time settlement of taxes such as service tax. Everyone was bullish about the industry, and customers were willing to invest. But, everyone was caught off-guard with the COVID-19 pandemic. The focus of the Government has now shifted towards the safety and welfare of the people. The focus now is on controlling the spread of the virus. To combat the disease, the Government, in March 2020, had announced a total lockdown for more than a month. This left millions of skilled and unskilled workers unemployed, the majority being the migrant workforce. Similar to everyone else, the migrants wanted to be with their families. With the help of Government and their employers, thankfully the labourers have now reached their homes.
In the supply chain of the construction industry, manpower plays a major role. Even though the construction industry was exempted from closures in the SOPs of lockdown, which started Phase 2 onwards, the lack of manpower impacted the pace of construction projects. The majority of construction sites struggled with the issue of labour shortage, and the projects were delayed up to six months. Thankfully, the Real Estate Regulatory Authority (RERA) of the respective States acknowledged the issue on hand and accepted to amend the project timelines with respect to RERA filing.
One of the other major challenges faced by the construction industry is the shortage/unavailability of raw construction materials. The limited supply of materials further led to a price rise, especially in the case of essential supplies such as cement. Prices have shot up by almost 20 percent. Since the idling cost will be much high, the builders are forced to take a hit on prices and get going with the construction process. With the rise in the cost of construction, capital cost, and other overheads such as marketing and compliance costs; the project will no longer be viable. This might also lead to a decline in sales velocity. The projects IRR (Internal Rate of Return) has fallen, and it is no more an attractive option for investors or Private Equity (PE) funds. Without the cash flows, servicing the loans is simply not feasible. In such a scenario, the timely intervention by the Government and the Reserve Bank of India (RBI) to provide the moratorium for the lockdown period is greatly appreciated.
