Impact of lock-down and recession on the housing sector in India

Slowdown in sales

Real estate sales have been negatively impacted by the lockdown imposed in India, paralysing all non-essential sectors of the economy. A report by ANAROCK Property Consultants states that housing sales will witness a 25-30% fall in 2020. A report by the Economic Times anticipates a decline by 40%. In India’s top 8 metropolitan cities, moneycontrol reports that sales have fallen by 54% and are presently the lowest in a decade with the first half of the year witnessing 59,538 units being sold. It is speculated that this slump in the sector is to continue into 2021. 

In terms of a turnaround, Bangalore is leading the surge with enquiries into the sale of houses returning to 70% of the January-February period, followed by Gurgaon at 65%. The greatest decline has been seen in the affordable housing sector (homes under 50 lakhs). According to reports from Jones Lang Lasalle Property Consultants the national real estate sector is presently sitting on an unsold inventory of Rs 3,70,000 crore consisting of 4,55,351 unsold units. The average time required to clear the stock in the top 8 metropolitan cities alone is expected by 3. 3 years now.

Dependence on import for materials & countermeasures

Many construction companies rely on Chinese steel supplies for their buildings. With cutbacks on imports from China implemented this could spell a slowdown in the recovery of this sector. The government is at work on a strategy paper to produce 10 million tons of steel at the cost of 50,000 crore employing around 50,000 workers, as reported by 99acres. This, and the diminished dependence on Chinese supply chains would prove a good opportunity for local industry even in construction peripherals such as coke, heavy machinery, etc.

Wages of construction laborers

The central government had instructed contractors that construction workers are to be paid full wages during the lockdown. The crises did not affect agricultural and rural workers as severely as most of them are registered under the Mahatma Gandhi National Rural Employment Guarantee program, which ensures that they have job cards and bank accounts into which their wages can be transferred. Workers in urban environments however do not have any reliable registration which may be drawn on to come up with a record of them. 

Identifying who their employers are presents a further challenge. Infrastructure companies usually employ subcontracting companies, who, in their stead hire a petty contractor to supply the laborers. The petty contractors, it is found, may be licensed or unlicensed.  A labor-in-charge is hired by the subcontracting company. He is responsible for the welfare of the workers. He distributes the wages to the petty contractors who in turn, pay the workers once the task is completed. In a survey conducted in Thane, Maharashtra it was found that each level of the organization pointed at the other when asked as to who was responsible for paying the workers. 

According to a survey conducted by India Migration Now between 25th March to 3rd May  90% of the petty contractors said that they had not been paid by the subcontracting company and therefore could not pay the workers.  The Interstate Migrant Workmen Act, 1979 mandates the registration of contractors who hire migrant workers and also requires that they maintain a record of the workers themselves. This act itself does not formally cover intra-state and self employed workers; however the labour department itself has been inadequate to the task of seeing to its implementation. In 2011-12 for example it admitted that 11 states in our country had no employer registered under this act. 

These situations have collectively led to a transfer of investment away from real estate and onto safer instruments such as fixed deposits and gold. Stocks in real estate, along with other assets witnessed a major fall in capitalization. 

Countermeasures by the government

To address these circumstances the central government has allocated a fund of 31,000 crore to the states to be used for the welfare of construction workers. Another package of 1.71 lakh crore is directed towards migrant laborers. Delhi, Maharashtra, Gujarat, and Uttar Pradesh have announced relief for migratory workers such as food and shelter. A second round of relief measures, including a package of 20 lakh crore has been proffered by the central government. The RBI has also set out a fund of 1 lakh crore, half of which is to be utilized in the National Housing Board, the Small Industries Development Bank and National Bank for Rural and Agricultural Development. 

How these funds are utilized by various state governments and organizations is what remains to be seen.