The outbreak of coronavirus in Wuhan, China, has affected market sentiment around the world. As allied companies such as steel, heavy machinery, and other raw materials are heavily dependent on Chinese imports, the Indian real estate industry would also be indirectly affected.
Coronavirus has infected more than 60,000 people worldwide and has claimed over 1,400 lives in China. Business sentiment is severely affected with it being declared a global health emergency by the World Health Organization (WHO). The outbreak has created a lot of speculation regarding trade and imports, not just in China but around the world. Nor is the real estate industry spared. Traders are cautious about visiting mainland China and are sceptical about cutting production in the months ahead. This will have a direct bearing on the steel prices and other articles used in India’s construction industry.
Let us address in depth the possible impact of coronavirus on Indian immovable property and related industries.
Why would it affect the Indian Real Estate sector?
India imports extensively products used in Chinese construction activities. Some of them are-
- Iron and steel goods
- Industrial building equipment
- Electronic equipment
- Solar panels
- Plastic and fibre materials
China remained the largest steel producer with a production capacity of 928.38 million tonnes (MT) in 2018. Although India is the second-largest producer, its production capacity, which stands at 106 million tonnes, lags severely. That heavy reliance on China for steel and steel products is an industry concern. With demand going down in China, prices in the allied industries are expected to increase, thus increasing costs and reducing the profit margins of Indian real estate developers. The slowdown in China’s construction industry will bring downward pressure on world metal prices.
More than 300 Fortune 500 firms worked in Wuhan, China, in 2019, according to a recent report by CBRE. The epidemic will force businesses to provide more flexible work arrangements like’ Work from home’ rather than co-working spaces. The companies could delay real estate decisions and limit new launches. The paper, however, points out that the outbreak would affect mainland China more, and neighbouring countries may have only a temporary dip in business activities.
Looking from the Indian business perspective, the coronavirus outbreak could be an opportunity for Indian companies to increase their production capacity and give the “Make in India” campaign a boost.
The Indian government encourages steel companies to increase production capacity and grab a greater share of the market. In the current scenario, the Ministry of Steel, Government of India, is preparing a strategy paper to produce 10 million tons of special steel at the cost of 50,000 crore Rs with 50,000 job potential.
Given the skewing of the Chinese supply lines, the industry has an opportunity to explore other markets to procure raw material and reduce reliance on Chinese imports. That could be a veiled blessing for the indigenous manufacture of imported goods such as metal panels, steel bars, heavy machinery and coke.
In addition, the manufacturing companies of solar panels can also take advantage of the reduced supply and increase production to reduce long-term costs.
Echoing the same sentiments, KW Group Managing Director Pankaj Kumar Jain says, “The effect of coronavirus outbreak on Indian immovable industry will be indirect. Though China is directly affected, supply-side constraints offer an opportunity to explore other avenues for procurement of raw materials. The industry is already facing the headwinds of timid demand and global economic slowdown. While the outbreak in the Indian scenario is not yet a threat, the government must take tough steps to prevent the spread of infection so that the business feeling is not further affected.
To sum up, the planet has also faced similar outbreaks in the past, such as SARS virus, bird flu, etc., and has recovered successfully. Any calamity represents an opportunity to reach new heights. Indian real estate and related manufacturing industries have to find scenario positivity and benefit from increased production and indigenous innovation. In times of crisis, the government would do well to stop further virus proliferation and handle the industry.