Some bright spots in slowed down economy

Some bright spots in slowed down economy

One of the bright spots of Indian economy is the booming commercial realty. Though residential realty (other than affordable housing) is struggling, to say the least, commercial realty has been the saviour for many realtors. It has also been attracting lot private equity players and as a result funding too is not a problem here

The ongoing slowdown in global growth, rising business uncertainty and a tightening of financial conditions provide ideal case for the fittest to survive and thrive. However, even the number of such survivors may not be many and the number may be fast declining as the fear of recession is fast spreading.

Uncertainties are plenty – US-China Trade war, possible recession in USA and some other developed markets, geo political tensions of Middle East, skirmishes across the border, etc. Its not just the events themselves that are important but how we tackle them too are a matter of concern. Its unlikely that this time the whole world would talk in one economic language as we did in 2009. To that extent situation is bleak.

However, in a world where uncertainty rules there are some bright spots which may give rest of the industries some inspiration. Some of the bright spots of the economy are:

Commercial realty is booming

One of the bright spots of Indian economy is the booming commercial realty. Though residential realty (other than affordable housing) is struggling, to say the least, commercial realty has been the saviour for many realtors.  It has also been attracting lot private equity players and as a result funding too is not a problem here. Brookfield buyout of Hiranandani office assets in Mumbai, Blackstone JV with Embassy/Panchshil, RMZ tie up with Qatar Investment Authority are just a few examples.

In the first half of current calendar year record 28 million sq ft have been completed out of which 21 msf has been absorbed as most of the upcoming supply was pre-committed. Bengaluru and Hyderabad are the most preferred locations for the office buyers while select micro-markets in other cities such as Central Business District (CBD) areas of Gurugram in NCR continue to see strong occupier interest. Further, the recent fall in the Indian G-sec yields to 6.6% might have resulted in compression in cap rates for annuity assets.

While the domestic IT/ITeS companies are affected by slowdown resulting in lesser fresh recruitments which in turn will lead to sluggish leasing demand, this is more than made good by hiring by Global In-House Captives for higher-end jobs. Further, co-working spaces have emerged as an additional driver and according to a report by Colliers India, India has more than 160 co-working space operators running over 350 centres in India.

However, limited number of developers capable of building quality rental assets may put a ceiling on maximum growth in this segment.

Shrinking home improvement cycle

Despite the overall slowdown of the economy, one sector stood out with its sterling performance is decorative paints industry. This performance has come in the midst of slowdown in residential realty sector which has seen less number of launches. This clearly indicates the changing lifestyle of home owners for whom home improvement, both frequency and extent, is a serious matter of choice. Repainting is influenced by factors like increase in income levels, number of festive & marriage days and lifestyle improvement. As the economy grows, its repainting cycle gets shortened. In India, repainting cycle has reduced significantly from 7 years a decade back to 5 years now and this cycle is expected to reduce further in the coming five years.  In some cities it has already come down to 3.5 to 4 years which will be followed by other cities too. Also, mindset of people is fast changing who now view paint as an item of decor and paint their wall frequently without waiting for it peel off.

Formalisation of the economy

GST has been in vogue since last two years and the changes it was supposed to bring in the economy are happening now and that too slowly. One of such changes is the formalisation of the economy, that is, shift from unorganised to organised sector. In the first quarter, part of the growth in the volume of building materials companies is due to shift in the market share from unorganised to organised sector rather than growth of the overall industry. With stricter enforcement of its provisions and enhanced efficiency of surveillance drive towards formalisation of the sector is only going to gain momentum in the coming days.

Greening the manufacturing process

National Green Tribunal’s order in March banning the use of coal gasifiers in tile manufacturing is a step towards greening the tiles manufacturing and that has started taking place at last. Out of nearly 450 manufacturers, more than half have already switched over to natural gas and some others have closed down the shop. Gujarat Gas Ltd is the one who supplies piped gas to Morbi tiles manufacturing industry and the sudden volume surge in the month of March and onwards indicates that Morbi is using more natural gas than before. Gujarat Gas volume for March has crossed 3 mmscmd as against 2.2 mmscmd in February.

However, there is no doubt that slowdown is pinching each and everyone’s pocket and the government need to come out with suitable solution immediately. Otherwise, even the segments doing better too may join the majority list.

Subscribe to Sawdust

Select your preferences
//s3.amazonaws.com/downloads.mailchimp.com/js/mc-validate.js

Leave a Reply