Robust Realty & Infra Growth to Boost Construction Sector
Spurred by the supporting economy and favourable policy initiatives by the current government, the rejuvenated real estate and infrastructure sector bodes well for the construction business, especially as the government will provide an extra capex push in view of the upcoming general elections in 2024.
Vinod Behl
The resilient and continuously improving economy and businesses in a stable government, the long-pause in interest rates amidst easing inflation, and the investment-friendly policies, have given a big push to the real estate and infrastructure construction sectors.
Real estate, especially residential, has been on a high growth curve with apartment sales touching a 15-year high. Going forward with a favourable economic, business and employment scenario, likely cut in interest rates, and rising demand with strong urge for home ownership, will see the residential realty gaining further momentum in 2024, driven by both end-users and investors.
The office sector that held ground amidst global headwinds, with 42.2 msf of leasing in the first three quarters of 2023, will see greater momentum with the growth of flexible workspaces and the E&M sector, supported by government's favourable manufacturing policy and initiatives to take advantage of global supply chain realignment.
India will remain a preferred market for business expansion with the supply of Grade A office spaces at comparatively lower rates and global GCCs expanding their operations in India. India’s real estate has become a preferred asset class for global investors, especially institutional investors. And with the current government expected to return to power in 2024, the stability of the reform-oriented government will prove to be a growth booster for real estate.
The big rise in government spending on infrastructure development is spelling good times for the construction sector. Under FY 24, the budget capital investment outlay for infrastructure development is being increased by 33% to 10 lakh crore (USD 122 billion) - about 3 times the outlay in FY 20. Further, it is complemented with 1 year extension to 50-year interest free loan to states to spur investment in infrastructure with a significantly enhanced outlay of USD 16 billion. The large spending on infrastructure is already showing its positive impact on the construction order book of corporations. According to industry statistics, the total order book of top 25 companies in infrastructure, power, and capital goods, rose 16.1% to 11.47 trillion by September 30, 2023, compared to 9.88 trillion during the same period a year ago.
In 2024, mega infra connectivity projects in the pipeline include expansion of Delhi Airport Terminal 1 by end of February; operationalization of Navi Mumbai Airport; and completion of the first phase of Jewar International Airport towards the end of 2024. According to CRISIL, India will spend nearly Rs 143 lakh crores on infrastructure development between FY 2024-2030, more than twice the Rs 67-lakh crores spent in FY 2017-2023. Of the total, Rs 36.6 lakh crore will be green investments, making a 5x rise compared with 2017-2023. Four key sectors of roads and highways, power transmission, renewable energy and ports will benefit while upcoming sectors like EVs, solar, wind, hydrogen energy will pick up pace. There will be significant growth in the average ticket size of projects and funding needs will be met through accelerated bond market, robust equity markets, and greater foreign investment.
According to global rating agency Fitch, investors are bullish on a stable government and the reforms. A 25% YoY increase in budget allocation towards the road sector, has already fuelled interest among investors. In FY 24, road construction will beat FY 23 targets by a good margin. NHAI is revising the target to construct 6000 km of roads and awarding 13500-13800 km of contracts in the current financial year. Funds from Canada will continue to support NHAI's monetization programme and remain invested in National Highway Infra Trust (NHIT).
NHAI needs Rs 13,000 cr of investment to monetize 1000 km length of about a dozen highway stretches through NHIT. KKR, Cube, IRB have put in two bids each for two bundles of highways which NHAI plans to monetize through (TOT) model. About 10 global and domestic infra bonds, including KKR are in the race for National Investment & Infrastructure Fund (NIIF) USD 1.2 billion road portfolio. Multilateral global funding agencies are showing faith in India's growth potential. In a latest move, the Asian Development Bank has committed USD 400 million to create high quality urban infrastructure, enabling cities to mobilise innovative financing such as commercial borrowings, issuance of municipal bonds, sub-sovereign debts and PPPs to boost urban infra investments.
The flagship Gati Shakti programme of infrastructure development is playing a crucial role in boosting construction sector. The programme has evaluated and put on fast track more than 300 central and state projects worth Rs 11.58 lakh crore during two years of its inception. And now the government plans to take PM Gati Shakti National Master Plan (PMGS-NMP) global to help developing and developed nations like Sri Lanka, Nepal, Bangladesh, Central Asian and South Asian countries to streamline their infrastructure planning processes through a digital tool.
There are good times ahead for construction companies as prices of steel and aluminium have dropped by 25% and 32%, respectively, though there has been increase in cement prices. In the wake of approaching general elections, the Modi government is pushing for speedy completion of real estate/housing and infrastructure projects. Under the NIP (National Investment Pipeline), projects worth Rs 108 trillion are currently at different stages of implementation.
The budget for FY 25 will have greater allocation for infrastructure which in turn will boost construction sector. Like real estate sector, we will be seeing greater consolidation in the construction sector. According to construction industry analysts, stronger companies like PNC Infra, NCC, KNR Construction, Dilip Buildcon see promising opportunities. Especially diversified construction companies are performing better. According to India Brand Equity Foundation (IBEF) , the construction market is likely to reach USD 1.42 trillion by 2027, expanding at a CAGR of 17.26% during the 2022-2027 period. To achieve economic growth target of USD 5 trillion by 2025, the government is giving a big push to real estate and infrastructure sector.
Vinod Behl
The resilient and continuously improving economy and businesses in a stable government, the long-pause in interest rates amidst easing inflation, and the investment-friendly policies, have given a big push to the real estate and infrastructure construction sectors.
Real estate, especially residential, has been on a high growth curve with apartment sales touching a 15-year high. Going forward with a favourable economic, business and employment scenario, likely cut in interest rates, and rising demand with strong urge for home ownership, will see the residential realty gaining further momentum in 2024, driven by both end-users and investors.
The office sector that held ground amidst global headwinds, with 42.2 msf of leasing in the first three quarters of 2023, will see greater momentum with the growth of flexible workspaces and the E&M sector, supported by government's favourable manufacturing policy and initiatives to take advantage of global supply chain realignment.
India will remain a preferred market for business expansion with the supply of Grade A office spaces at comparatively lower rates and global GCCs expanding their operations in India. India’s real estate has become a preferred asset class for global investors, especially institutional investors. And with the current government expected to return to power in 2024, the stability of the reform-oriented government will prove to be a growth booster for real estate.
The big rise in government spending on infrastructure development is spelling good times for the construction sector. Under FY 24, the budget capital investment outlay for infrastructure development is being increased by 33% to 10 lakh crore (USD 122 billion) - about 3 times the outlay in FY 20. Further, it is complemented with 1 year extension to 50-year interest free loan to states to spur investment in infrastructure with a significantly enhanced outlay of USD 16 billion. The large spending on infrastructure is already showing its positive impact on the construction order book of corporations. According to industry statistics, the total order book of top 25 companies in infrastructure, power, and capital goods, rose 16.1% to 11.47 trillion by September 30, 2023, compared to 9.88 trillion during the same period a year ago.
In 2024, mega infra connectivity projects in the pipeline include expansion of Delhi Airport Terminal 1 by end of February; operationalization of Navi Mumbai Airport; and completion of the first phase of Jewar International Airport towards the end of 2024. According to CRISIL, India will spend nearly Rs 143 lakh crores on infrastructure development between FY 2024-2030, more than twice the Rs 67-lakh crores spent in FY 2017-2023. Of the total, Rs 36.6 lakh crore will be green investments, making a 5x rise compared with 2017-2023. Four key sectors of roads and highways, power transmission, renewable energy and ports will benefit while upcoming sectors like EVs, solar, wind, hydrogen energy will pick up pace. There will be significant growth in the average ticket size of projects and funding needs will be met through accelerated bond market, robust equity markets, and greater foreign investment.
According to global rating agency Fitch, investors are bullish on a stable government and the reforms. A 25% YoY increase in budget allocation towards the road sector, has already fuelled interest among investors. In FY 24, road construction will beat FY 23 targets by a good margin. NHAI is revising the target to construct 6000 km of roads and awarding 13500-13800 km of contracts in the current financial year. Funds from Canada will continue to support NHAI's monetization programme and remain invested in National Highway Infra Trust (NHIT).
NHAI needs Rs 13,000 cr of investment to monetize 1000 km length of about a dozen highway stretches through NHIT. KKR, Cube, IRB have put in two bids each for two bundles of highways which NHAI plans to monetize through (TOT) model. About 10 global and domestic infra bonds, including KKR are in the race for National Investment & Infrastructure Fund (NIIF) USD 1.2 billion road portfolio. Multilateral global funding agencies are showing faith in India's growth potential. In a latest move, the Asian Development Bank has committed USD 400 million to create high quality urban infrastructure, enabling cities to mobilise innovative financing such as commercial borrowings, issuance of municipal bonds, sub-sovereign debts and PPPs to boost urban infra investments.
The flagship Gati Shakti programme of infrastructure development is playing a crucial role in boosting construction sector. The programme has evaluated and put on fast track more than 300 central and state projects worth Rs 11.58 lakh crore during two years of its inception. And now the government plans to take PM Gati Shakti National Master Plan (PMGS-NMP) global to help developing and developed nations like Sri Lanka, Nepal, Bangladesh, Central Asian and South Asian countries to streamline their infrastructure planning processes through a digital tool.
There are good times ahead for construction companies as prices of steel and aluminium have dropped by 25% and 32%, respectively, though there has been increase in cement prices. In the wake of approaching general elections, the Modi government is pushing for speedy completion of real estate/housing and infrastructure projects. Under the NIP (National Investment Pipeline), projects worth Rs 108 trillion are currently at different stages of implementation.
The budget for FY 25 will have greater allocation for infrastructure which in turn will boost construction sector. Like real estate sector, we will be seeing greater consolidation in the construction sector. According to construction industry analysts, stronger companies like PNC Infra, NCC, KNR Construction, Dilip Buildcon see promising opportunities. Especially diversified construction companies are performing better. According to India Brand Equity Foundation (IBEF) , the construction market is likely to reach USD 1.42 trillion by 2027, expanding at a CAGR of 17.26% during the 2022-2027 period. To achieve economic growth target of USD 5 trillion by 2025, the government is giving a big push to real estate and infrastructure sector.
NBM&CW - January 2024
