Impact of Realty Slowdown on Building Materials Sector
Abnormally high home prices have weakened residential demand over the last two quarters, with a significant 23% decline in housing sales during January-March quarter of 2025. This, along with the slowdown in infrastructure development, is casting a shadow on the building material sector.
Vinod Behl
In FY25, India's infrastructure sector experienced a slowdown in growth with the index of 8 core industries growing by 3.8% in March 2025 compared to 6.3% in March 2024.There has been 7-10% slowdown in highway construction with daily construction dropping to 31 kms in FY25, from 34 kms in FY 24. The cumulative awarding of the national highways was also low in FY25, compared to FY24.
On the housing front, there was a 34% YoY decrease in supply in Q1 2025, with a 30% drop in the supply of affordable units over the last one year. Even the spurt in luxury / ultra-luxury homes sales has not been able to adequately compensate for the loss in demand triggered by the decline in affordable and mid-segment housing.
According to CRISIL, the cement sector which saw a double digit (11%) growth in FY22, FY23 and FY24, faced a slowdown with reduced 7-8% growth in FY25 . It had the slowest rate of consumption (6.2% YoY) in 2024. Some companies have even reported production cuts due to weak demand. Materials like cement and steel have seen slackening of demand due to the slowdown in infra and housing sectors, coupled with cheap imports.
The paints industry has also seen weak consumption due to slow urban demand. Further, the increasing competition with the entry of newer players and margin pressures have contributed to the muted growth. For the tiles segment, though domestic demand showed resilience, the overall demand got hit due to export headwinds on account of anti-dumping duties imposed by the US.
According to ICRA, smaller and medium-sized players who have greater dependency on exports, felt the heat even more. According to a report by Prabhudas Leeladhar, demand challenges in the bathware segment will continue in the near future. Amid demand challenges and weak market conditions, CERA has paused its greenfield sanitaryware expansion.
Notwithstanding these blips, the building material industry is optimistic about its growth prospects. Ultratech, which has seen its Q4 profit rising 10% on higher volumes, is positive about the long-term prospects of the cement sector despite short-term challenges, with stable demand set to support growth.
For the steel sector, the government is offering support to boost domestic demand growth. The steel ministry is formulating a joint strategy with other ministries for taking effective measures to enhance supply of scrap for steel production in the backdrop of EU and some other countries proposing restrictions on the export of scrap. The government is also taking measures to protect local steel firms from unfair dumping and irrationally low pricing. As a positive sign, most major steel makers are expanding their production capacities.
Considering the government's continuous focus on boosting the infrastructure and housing sector, the road ahead for the building material sector looks promising. According to Gaurav Aggarwal, Chairman, StoneX, the industry is entering a sustained growth phase which is projected to continue till 2028."
The market is brimming with active real estate and infrastructure projects and this momentum is expected to translate into strong sales. As a result, the outlook remains positive, especially for demand in high quality building materials.
