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    Economic slowdown threatens to derail one of Modi’s pet projects

    Synopsis

    Industry watchers say slowing demand could have a direct hit on the affordable housing segment.

    Modi
    Bleak cement volume growth is already telling a story of further slowdown in housing.
    India’s economic slowdown is threatening to derail one of Prime Minister Narendra Modi’s pet projects.

    As slowing demand begins to hurt consumer sectors, triggering painful job cuts in some and creating income uncertainty in others, industry watchers are fearing a direct hit on the affordable housing segment, a key focus area of the Modi government, where is demand is drying up fast.

    Some estimates show India’s real estate developers are sitting on 4.12 lakh units of unsold apartments priced up to Rs 45 lakh. Half of that inventory is lying in cities with direct exposure to the automobile industry, where a prolonged slump in sales is forcing carmakers to announce shutdowns, lay off temporary workers and freeze hiring.

    The real estate sector has already been going through a difficult phase amid a liquidity crunch, dearth of demand as well as regulatory challenges. The BSE Realty Index is down 4 per cent for last one year and 55 per cent in last 10 years till September 9.

    The delay in government measures to address the economic slowdown may work as salt to the wounds.

    “The government has already announced several steps to make affordable housing attractive, both for buyers and developers. But lack of employment growth in a slow economy and absence of job security are hurting home buyers’ sentiment. When there is income uncertainty, people get into cash-conservation mode. A home loan is a prolonged financial commitment and requires confidence in one’s job situation,” Anuj Puri, Chairman of Mumbai-based Anarock Property Consultants, told ETMarkets.com.

    Auto check with real(i)ty
    Stating with Pune, home to auto majors like Bajaj Auto, Volkswagen, Mahindra and Mahindra and 750 other big and small auto and auto ancillary players, has 98,378 unsold affordable housing units, showed one estimate. India’s top auto export hub Chennai has 18,709 units.

    Data from real estate portal Proptiger showed that Gurgaon and Noida – the region home to carmakers like Maruti Suzuki, Hero MotoCorp and Honda – together have around 58,000 affordable housing units in the unsold inventory.

    Ahmedabad, another fast growing auto export hub, has 45,000 unsold affordable housing units.

    Jobs cuts in auto or any other industry will impact the demand for affordable housing, says Sameer Kalra, Founder & President (Research), Target Investing. “The ongoing slowdown forced auto majors to cut production by 15-20 per cent during April-July. They have slashed production by 33 per cent in last 2 months,” he said.

    Bleak cement volume growth is already telling a story of further slowdown in housing. June quarter volume growth of domestic cement firms plunged to their lowest level in many quarters.

    Commercial vehicle major Ashok Leyland on September 9 said it would suspend work at various manufacturing facilities across the country this month to adjust production to market demand.

    Shares of Ashok Leyland have cracked nearly 40 per cent year to date. Almost every other stock in the index has wiped out investor wealth.

    Shares of Motherson Sumi, M&M, Exide Industries, Cummins India, TVS Motor, Eicher Motor, Tata Motors, Bosch and Apollo Tyres have retreated in excess of 25 per cent.

    In August, Indian auto firms reported the steepest drop in sales ever since industry lobby Society of Indian Automobile Manufacturers (SIAM) started recording wholesale vehicle sales data in 1997-98.

    Vehicle sales across categories, including passenger vehicles (PVs) and two-wheelers and commercial vehicles (CVs), fell 23.55 per cent (YoY) to 18,21,490 units in August from 23,82,436 units in the same month last year.

    Two-sided story

    All India Gems and Jewellery Domestic Council on Monday said the industry was witnessing a ‘recession’ and skilled artisans are staring at possible job losses.

    Soap majors have already slashed prices following lower palm oil prices to tackle muted growth. FMCG major Hindustan Unilever (HUL) last month cut prices of its popular soap brands Lux and Lifebuoy. Data analytics firm Nielsen, in a report, said last month that sales of FMCG items, including soaps, slowed down in April-June quarter. FMCG is usually considered immune to temporary economic slowdown.

    The slowdown has started pinching government tax kitty too. The county’s GST collections dropped to Rs 98,202 crore in August from over Rs 1.02 lakh crore in July, marking the second month this year when revenue collection has slipped below the Rs 1 lakh crore mark.

    “The government is very serious about its Housing for All by 2022 mission. To meet the deadline for affordable housing, the government will have to take decisive steps to revive the economy. Creation of affordable housing units is just one side of the story – people will also have to be able to buy them,” Puri said.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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