Impact of coronavirus on the construction sector

1 min read

The real estate sector is faced with another crisis. After going through a period of lull, resisting it successfully and getting back on its feet again, the property sector has slowed down again, thanks to the Covid-19 virus. The government of India had announced a 21-day nationwide lockdown to flatten the curve of the deadly coronavirus. During this complete lockdown period, all non-essential activities have been frozen and construction companies have halted all its construction activities to show solidarity with the government and health of the people.

The stringent measures taken to contain coronavirus spread has started impacting ongoing construction projects due to the unavailability of construction workers. In excess of 30% of total construction workers are not reporting at the site amid the spread of COVID-19. As per the president of CREDAI (Confederation of Real Estate Developers’ Associations of India), most of the construction sites are running at just half of its usual run rate as fear about the COVID-19 infection is keeping construction workers attendance at less than 70%.

CREDAI also noted that the sector was already facing an acute shortage of construction materials due to import restrictions and shutting of inter-state borders leading to supply issues and escalation of raw material prices

The construction activities in cities like Mumbai-MMR (Mumbai Metropolitan Region), Delhi-NCR (National Capital Region), Pune and Bengaluru are expected to be stalled or likely to continue at a significant low pace than the usual rate in the remaining March’2020 and coming April’2020. There are around 15.60 lakh housing units are under construction across the cities in India and nearly 57% of these are in Mumbai-MMR and Delhi-NCR alone.

According to India Ratings and Research agency, the annual revenue of construction companies could erode by 8% – 10% of their fourth-quarter revenue amid COVID-19 pandemic lockdown. The month-long lockdown is likely to obstruct the execution of infrastructure construction and will impact on their revenue growth in the near term.

As per CREDAI, an industry body, currently, there are around 20,000 projects that are under construction, but construction work is going on in 18,000 projects only. These construction projects involve a workforce of around 8.5 million. This lockdown and absence of workers from sites could lead to delay in the completion of projects, cost escalation and revenue loss for construction companies.

On the request of our Prime Minister, private & government employees along with contractual workers’ salary will not be deducted during coronavirus pandemic. The continued expenditure in the form of overhead and finance charges are also likely to impact the profitability of construction companies in the near term.

Owing to the risk emerging out of this coronavirus outbreak, India Ratings and Research agency has downgraded the overall outlook on the construction sector to negative from stable for 2020-21, on the account of weak expectations or muted order inflows. Although RBI announced a raft of measures including a three-month moratorium on payments of installments of home loans, it’s too early to say whether it will be enough for the real estate sector to get back the confidence of homebuyers.

Sumit Mondal Content Analyst at Square Yards
Sumit Mondal Content Analyst at Square Yards