We are eager and striving hard to bring our operations back on track post the lockdown. Going forward, we will focus on our ongoing projects and continue to engage with the government as well as private sector clients to explore opportunities in the buildings and factories, water and smart cities segments.
Real Estate to be a major contributor of country’s GDP in years to come
The corona crisis has certainly impacted the short-term outlook for the Indian Real Estate sector. Sale of residential properties and leasing of office spaces have suffered setbacks during the lockdown period. The retail and hospitality sectors are very severely impacted. PE, VC investment decisions in Real Estate have been put on hold for some time. Moreover, the buyer and investor sentiments have been dampened further. As it is, the sector was facing a liquidity crunch following the NBFC crisis and a demand slowdown. The massive exodus of workers, halted work, and impaired economic activities during the lockdown have taken a toll on the industry.
Despite the corona-induced setbacks, we do not see a long-term adverse impact on the Real Estate market. India has a huge economic opportunity in the coming years. With increasing per capita income and a population of about 1.30 billion, the Indian economy will continue to prosper, aided by digitization, globalization, favorable demographics, and reforms. In addition, increased government spending on infrastructure and rising urbanization will provide plenty of opportunities for the construction sector.
As the Indian economy transitions and our workforce expands, we will see vast development and investment opportunities in the Real Estate sector. The growth of cities is going to further influence the country’s built environment, while technology, demographics, and environmental issues will become the new value drivers. The ideas, trends, and behaviours that will shape the Real Estate sector in the next decade are already perceptible today. Some are clearly evident while others are emerging quietly around us. By 2030, the Real Estate universe would have expanded tremendously as today’s new asset classes such as co-living, warehouses, data centers, will become mature segments.
In the years to come, the Real estate sector in India will continue to be a major contributor to the country’s GDP. Emergence of nuclear families, rapid urbanisation and rising household income are likely to remain the key drivers for growth in all spheres of real estate, including residential, commercial and retail. India continues to attract Private Equity and Venture Capital investments in the sector. Office space has been driven mostly by growth in ITeS/IT, BFSI, consulting and manufacturing. Recent initiatives like Smart Cities, raising of FDI limits for townships and settlements development projects and for real estate projects within SEZs and Real Estate Investment Trusts (REITs) will augur well for the real estate sector. Further, the Government of India’s ‘Housing for All’ initiative is expected to bring huge investments in the housing sector in the years to come. The Real Estate (Regulation & Development) Act is making the sector more transparent.
Although the actual growth figures may vary from the projected figures over the long term, the long term outlook for the Indian Real Estate sector remains intact.
Insufficient labour strength could severely impact the construction operations
The government has recently relaxed the nation-wide lockdown norms and conditionally permitted the migrant workers to travel to their home states. This has led to an exodus of construction workers from the metropolitan cities. The local authorities are facilitating these workers and are arranging their rail travel to their home states. All these days, in the absence of a transport network during the nation-wide lockdown, the workers had no option but to be confined to the worker accommodations provided by the construction companies near the construction sites.
Most of these migrant workers are skilled in construction trades like carpentry, barbending, masonry, plastering, fabrication, etc., and are crucial to ensuring work progress. Although organised players like Shapoorji Pallonji E&C were taking care of their workers by providing them wages, rations and medical facilities in the camps, there was growing anxiety among them with news of the lockdown getting extended.
The construction companies are now finding it difficult to convince their sub-contractors and the workers to stay back and resume work. Now that the government has conditionally permitted some of the construction sites to resume work, the construction companies are facing this new challenge of resuming construction activities without having adequate worker strength. Also, due to the mismatch of skills amongst the remaining workers, output and productivity is seriously impacted. Even as the supply chain for construction materials supply is slowly getting streamlined, insufficient labour strength could severely impact the construction operations of these companies in the weeks to come.
Just before the nationwide lockdown began, Shapoorji Pallonji E&C had about 1,50,000 construction workers across all our projects in India - which include government and private sector projects. Depending on the volume of the project, the strength on each project ranged from 150 workers to 4,000. Currently, we are left with only 15 to 30% of the original worker strength.
Shapoorji Pallonji E&C is taking multiple steps to convince its workers to stay back and continue working. We are assuring them about our preventive and welfare measures, even post-lockdown, for their safety and well-being. We are conducting motivational talks to alleviate their anxiety as we believe that constant communication and engagement will keep them motivated. We are incentivizing them financially and releasing timely payments so that they know that they can continue to earn their livelihood in a safe way. We are getting good support from some of our clients in these efforts.
We are continuously engaging with our regular labour subcontractors to ensure that the worker strength improves in the post-lockdown scenario. We are persuading them and addressing their grievances to ensure work continuity. However, a section of the workers is anxious to return to their home states. Some of these workers could also get diverted to agricultural work in their villages. This could pose an additional challenge in mobilising an adequate number of workmen for construction work in the near future. It is expected that it would take at least 6 months for the worker strength to return to normal.
The Government can play a crucial role in reviving India’s Real Estate Sector
The construction contracting fraternity was already reeling under severe financial stress from the last 3-4 years, and especially so in the last one year. The corona crisis will seriously impact the revenues of the construction companies and almost all will face huge financial losses in the months to come. The financial stress is expected to worsen over the coming year as the contracting companies continue to be burdened with onerous clauses in contracts. Many government contracts involve contractual risks that are far higher than the margins that can possibly be earned through efficient project execution. Companies are required to furnish bank guarantees from 15% to as high as 30% of the contract value. The project execution itself is dependent on many key decisions and approvals that need to come from the employer or the authority’s engineer.
The liquidity constraints being faced by all construction companies and their supply chain are likely to delay the recovery efforts. Most companies have already represented to their clients – both government and private - to help ease the situation by expediting release of payments towards certified bills, arbitration awards, retention releases, etc., and also by considering additional advances. These payments can then be channelized by the companies to their suppliers and subcontractors, which would be very crucial to mobilize and retain their workers after the lockdown is called off.
In addition, the government can derive immense economic benefits through adoption of standardized and equitable contracts, relaxed payment terms, a rationalized contractual risk structure, and reasonable bank guarantee requirements. The government needs to build accountability within its project implementation teams for giving timely decisions and approvals to the contractors in order to expedite project completions. These measures can revive the construction sector, generate massive employment, and thus have a multiplying effect on the national economy.
Considering the current crisis that the Real Estate industry is facing and its impact on the nation’s economy, it would be worthwhile for the government to consider some relief measures for the industry. Some of the proposed measures include one-time restructuring of loans, additional institutional funding, waiver of penal interest, policy innovations to trigger demand, operationalisation of government’s last mile funding, controlling cartelisation of raw material, and changing the criterion of affordability for GST applicability.
The government can also consider increasing the limit of principal deduction on housing loan under Section 80C to ₹2.5 lakh from ₹1.5 lakh. The interest deduction under Section 24 on housing loan for homebuyers could be increased to ₹10 lakhs from ₹2 lakh. The pace of Real Estate project completion could be expedited by simplifying the processes for building permits and approvals, granting expeditious approvals and environmental clearances. This will instill confidence amongst buyers and generate new demand.
Beyond Real Estate, there is a huge scope for India to attract manufacturing investments from across the globe. The government can also play a pivotal role in launching mega infrastructure projects. These projects can generate huge demand for construction services and involve massive employment.
The government should also streamline its procurement processes to allow fair competition for tenders. Some of the areas that need attention include formulating realistic budgets for projects, adopting pre-qualification criteria to allow competitors of equal standing, and adopting QCBS system. This will lead to sensible bidding for government projects and improve the chances of project success.
Technology can help overcome labour challenges and also save time and cost
The evolving landscape of new technologies in the Real Estate and construction sector are transforming all stages of the project delivery process. The new technologies are changing how companies design, plan, and execute projects. By adopting advanced software, construction-focused hardware, analytics capabilities and advanced construction technologies, the companies are eliminating many of the problems that have dogged the sector for decades.
Such improvements could not have come at a better time, as construction projects are becoming increasingly complex and expensive, putting managers under greater pressure to improve costs, timelines, and efficiency.
The major companies use enterprise-resource-planning systems. In addition, new digital tools and solutions are being used for the design, preconstruction, or operations and management phases. In the construction phase, on-site execution, digital collaboration, and back-office integration are being reimagined with the use of such digital solutions.
The digital tools that support on-site execution enable the companies to mitigate some of the most pressing problems and in the process enhancing field productivity, safety monitoring and quality control. Some new applications help managers inspect remote sites by providing pictures and image tags, while others allow them to update and track their punch lists in real time. This, in turn, increases efficiency and accuracy during on-site execution.
The digital tools that support collaboration allow stakeholders - architects, designers, and site engineers (who are more numerous and widely dispersed than in most other industries) to work together. They need to communicate and align frequently, since certain changes, such as a seemingly minor modification to a materials order, could significantly increase timelines or costs if made too late. All related processes viz., design management, contract management, performance management and document management can be managed very effectively through digital collaboration tools.
The digital tools that support back-office integration allow companies to access and exploit valuable project data on finances, costs, and schedules by involving functions such as accounting, finance, and human resources. These tools give managers immediate access to real-time back-office data. Many back-offices focus on scheduling, managing equipment, and enterprise resource planning.
E&C companies are applying new hardware and software solutions for predictive analytics and for project monitoring, enabled by drones and the Internet of Things (IoT). These solutions apply advanced analytics and machine learning to data - both structured and unstructured—to optimize decision-making for multiple topics, including workloads, staffing levels, and strategies for minimizing inefficiencies. Some companies are using these technologies to improve 5-D BIM—the process companies use to create digital representations of physical structures - and then consider this information in combination with cost and scheduling data. Companies most frequently use drones to capture site images and aerial survey data, while IoT primarily helps with monitoring equipment and preventive maintenance.
Incidentally, Shapoorji Pallonji Real Estate employs its digital platform Virturo to provide a seamless buying experience. This platform puts a sales representative in the driver’s seat and equips him with key information like location, USP, Google Street View, sample flat photographs and other project-related information under one roof. Our aim is to provide an actual site visit experience to the prospective buyer on our virtual platform.
Many technologically advanced construction equipment are now available or can be imported into India at very competitive prices. The vendor base for such equipment has developed over the last few years and the post-sales service standards too have improved a lot. Such equipment are crucial to enhancing productivity of construction operations and also help save manpower costs, besides improving quality. The equipment are being used at a variety of projects from buildings to infrastructure.
As the operation dynamics of the Real Estate business in India are evolving and innovating at a pace much faster than envisioned, it is almost imperative that innovations be applied to the most basic as well as most important step in the value chain – construction techniques. It is expected that there will be wider use of technology in construction and construction management in the future as companies realise the long-term efficiency and cost savings of such techniques. Technology in construction space has coincided with growing demand for faster construction and world-class quality. Therefore, construction organisations would have to increasingly adopt newer techniques (and devise ways to mitigate/share the high costs associated with these new technologies) to meet the client’s changing demands.
Adoption of advanced technologies such as monolithic concrete construction (shear wall technology) using aluminium formwork, or precast construction, is slowly becoming the norm. These technologies reduce cycle times and the requirement of labour, reduce project duration vis-à-vis conventional construction, reduce material wastage, and improve construction quality and safety. These technologies also eliminate labour-intensive activities such as masonry and plastering, thus leading to time and cost savings. A high degree of modularity of designs that ensures a higher repetition of formwork and higher productivity of mobilised resources is an added advantage.
A lot of research and development efforts today are directed towards emerging technologies in precast construction that enable the manufacture of the whole dwelling unit as a monolithic module (with no joints) and complete with interior finishes. Similarly, 3D printing is set to revolutionize housing construction. It won’t be long before these technologies become affordable, especially for large volume constructions, and become commonplace in India. In fact, these technologies can emerge as credible solutions to address India’s affordable housing challenges.
Shapoorji Pallonji E&C’s projects in hand and order book during FY2019-20.
Shapoorji Pallonji E&C received new orders worth ₹22,500 crores in FY2019-20 in the domestic contracting business. These projects are primarily in the buildings, factories, and water segments. Almost 90% of these projects are for government organisations – both central and state. Some of the prominent projects are:
- IIT, Hyderabad Campus in Telangana
- IIT, Palakkad campus in Kerala
- Development of four seawater desalination plants in Gujarat
- New Passenger Terminal at Petrapole, West Bengal
- Chhindwara Institute of Medical Sciences in Madhya Pradesh
- IKEA Store in Bengaluru
- Phoenix Business Hub, Hyderabad
- Ascendas IT Park, Hyderabad
- RMZ Ecoworld IT Park, Bengaluru
- Birla Vanya Residential Complex at Kalyan, Maharashtra
- CIDCO Housing in Navi Mumbai
- Flipkart Warehouse at Nadia, West Bengal