#EconomicSurvey: Better Growth Prospects to Push Real Estate

According to the Economic Survey 2015-16 tabled in Parliament today (February 26) by Finance Minister Arun Jaitley, the Gross Domestic Product (GDP) growth rate in the FY16 is expected to be 7.6 per cent, higher than 7.2 per cent last fiscal. Though growth has been slowly picking up, the construction industry is moving along. In FY15, the industry grew 4.4 per cent but in FY16, the growth declined to 3.7 per cent.

In well-functioning economies, fluctuations in housing prices are a very good indicator of how GDP growth rates are likely to fluctuate. When the economy is healthy, there is likely to be greater investment in real estate assets and the housing sector, too. Why? When the economy is doing well, disposable incomes and the capital available for investment are higher. When productivity is higher, there is more money to go around.

So, why is the construction sector not growing fast enough when the economy is doing relatively well?

The construction industry often faces wide fluctuations based on many facts which are not determined by the overall performance of the economy. When interest rates are high, for example, there will be less investment. A consistently higher fiscal deficit will have the same effect. More importantly, uncertainty in the policy environment can affect the performance of the construction industry. Also, the disparity between the circle rates and market rates of properties will have an effect. For example, when circle rates rise, the velocity of transaction in the real estate markets will decline.

The performance of the construction industry deeply influence the performance of the economy because it is one of the largest employment providers and a great contributor to the economy.