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Monday, 02 Dec 2013
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Construction sector Vital for growth
 
Construction sector | Sapoorji Pallonji  

From the macro perspective, the slowdown in the economic growth has led to slackness in the Real Estate sector. The economy has to show signs of revival for the growth of the Real Estate industry. Currently, the government has a three-pronged agenda on its list, which is, increasing the GDP growth, reducing inflation and managing government deficits. Unless these economic levers are streamlined and stabilized, which will take some time, fundamental revival of growth is difficult. On the other hand, the current political setup which is also a key driver of the Real Estate sector and the finance rates, is at the anvil of an important general election which will define how these levers of growth are stabilized.

 

 

Venkatesh Gopalkrishnan | Shapoorji Pallonji Real Estate

Venkatesh Gopalkrishnan
EVP & CIO
Shapoorji Pallonji
Real Estate

Moving down to specific categories within the real estate sector, the commercial segment is affected by the economic factors directly linked to business growth. In the retail segment also, although FDI in retail has been announced by the government, it is for the states to take up the implementation of the same, post which only can we expect to see some movement in the demand. With the residential segment, end-users are holding on for two key reasons (i) they expect better terms for their purchase in the near future given the current uncertainty, and (ii) there is uncertainty in the job market along with a grim economic situation. Investors in this segment, especially those who are looking at a short-tomedium term, would look to park their money in other safe havens rather than invest in the real estate sector in this economic uncertainty.

 

From a micro perspective, there are certain pockets of growth across the country. For example, South Mumbai areas, and the city centre in Bangalore and Delhi in the NCR region are witnessing some demand. The demand in these geographies is more due to the demand-supply imbalance and these pockets will continue to be unaffected by the economic slowdown.

 

Moving forward, we should see some revival of growth in the real estate sector only after the political situation improves and the economic levers are stabilized, which seems to be a minimum of 6-8 months away. Post this fundamental revival, it is expected that the medium to long term outlook for this sector will be positive.

 
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