Construction Sector


 

OVERVIEW

Construction sector consists of the real estate as well as the urban development segment. The real estate covers residential, office, retail, hotels and leisure parks, among others. While, urban development segment broadly consists of sub-segments such as water supply, sanitation, urban transport, schools and healthcare, among others. The Indian construction industry is estimated at approximately US$ 136 billion for the year 2017. The construction sector has strong linkages with other manufacturing industries accounting for a significant share. The sector contributes 55% share in the steel industry, 15% in paint industry and 30% in the glass industry. This sector’s GDP contribution to the country has been 8%.

The Indian construction sector is expected to grow at 5.6% during 2016-20, compared to 2.9% during 2011-15. The activities that registered the highest growth include export cargo (10%), highway construction/widening (9.8%), power generation (6.6%), import cargo (5.8%) and cargo at major ports (5.3%).

Under the GST regime, all under-construction properties are to be charged at 8% (excluding stamp duty and registration charges). GST is not applicable to completed and ready-to-move-in projects, as there are no indirect taxes applicable in the sale of such properties. On account of GST, reduction in prices is estimated to be around 3-4%.

Under the Real Estate Regulation Act (RERA), the Real Estate sector involving over 76,000 companies came into the ambit of regulation from May’2017. Under the Act, each state and Union territory will have its own regulator and set of rules to govern the functioning of the regulator. The Act that came into force from May 2017, is considered to be the most significant reform.

By 2020, construction equipment industry’s revenue is estimated to reach US$ 5 billion. By 2025, construction output is expected to grow on average by 7.1% a year. By 2025, India's construction market is expected to emerge as the third largest in the world. Key drivers of real estate sector-regulatory reforms, steady demand generated due to rapid urbanization, rising household income and rising number of nuclear families.

Under 100 Smart Cities Mission, Smart Cities were selected through a ‘City Challenge Competition,’ linking financing and ability to achieve multidimensional objectives of urban infrastructure development like adequate and clean water supply, sanitation and solid waste management, efficient urban mobility and public transportation, affordable housing for the poor, power supply, robust IT connectivity, governance, especially e-governance and citizen participation, safety and security of citizens, health and education and sustainable urban environment. Till date, 99 cities have been identified, with an outlay of US$ 31.38 billion. The scheme is projected to positively impact 99 million of urban population.

Exports in the construction sector from India was valued at approximately US$ 1.2 billion in the year 2016-17, as per International Trade Statistics data.

100% Foreign Direct Investment (FDI) permitted through the automatic route for townships, cities. Development projects (which include development of townships, construction of residential/commercial premises, road or bridges, hotels, resorts, hospitals, educational institutes, recreational facilities, city and regional level infrastructure, townships) - 100% FDI through automatic route is permitted. FDI Limit for real estate projects within Special Economic Zones (SEZs) raised to 100%. 100% FDI allowed for single-brand retail trading and construction development segment (which includes townships, housing, built-up infrastructure) under automatic route.

FDI inflows worth US$ 24.7 billion were received in construction (development) during April 2000 to December 2017, and FDI inflows worth US$ 12.4 billion in construction (infrastructure) was received during the same time.

India’s real estate market is expected to reach a market size of US$ 180 billion by 2020. India to be third largest construction market globally by 2030, with its contribution to GDP increasing to 15% by 2030. The construction industry is poised to become the largest employer by 2022, employing more than 75 million people. As India’s urban GDP is expected to reach US$ 7.5 trillion by 2030, accruing 75% of India’s total GDP, the country needs to develop over 170 million houses until 2030. Present levels of urban infrastructure are inadequate to meet the demands of the existing urban population. There is need for re-generation of urban areas in existing cities and the creation of new, inclusive smart cities to meet the demands of increasing population and migration from rural to urban areas. Future cities of India will require smart real estate and urban infrastructure.

Investment opportunities in the sector include construction development in residential, retail, commercial and hospitality sectors, technologies and solutions for smart sustainable cities and integrated townships, technologies for the promotion of low cost and affordable housing, green building solutions, sustainable and environmentally friendly building materials, training and skill development of construction sector workers, and also urban water supply, urban sewerage and sewage treatment.


 

SELECT GOVERNMENT INCENTIVES

The key points in the Union Budget 2018-19 for this sector are-

  • Some incentives for developing SEZ/EMC’s and other sectoral clusters are - Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA, Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years, in 15 years under Section 80-IAB of the Income Tax Act, Exemption from Central Sales Tax (CST), and also Exemption from Service Tax (Section 7, 26 and the Second Schedule of the SEZ Act).
  • An Internal and Extra Budgetary Resource of US$ 2 billion has been allocated under Union Budget 2018-19 to Housing and Urban Development Corporation.
  • Under PMAY (Urban), a social welfare flagship programme of Government of India, a Gross Budgetary Support of US$ 1 billion is allocated under the present budget. Further, an Internal and Extra Budgetary Resource of US$ 3.84 billion is also given.
  • To achieve the target set to provide Housing for All by 2022, more than one crore houses to be built by 2019 in rural areas.
  • Setting up of a dedicated fund for affordable housing under the National Housing Bank to be funded by priority sector lending shortfall and fully serviced government authorized bonds.