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Investments in construction among the worst globally

Notwithstanding weak residential construction investment, real prices have grown at an average of 2.7 per cent since 2014 in India, much faster than many other nations, said Motilal Oswal.

ET Bureau|
Last Updated: Feb 20, 2020, 08.38 AM IST
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AFP
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Residential investments have fallen faster from 13 per cent of GDP in FY12 to 7.8 per cent in FY19, said Motilal Oswal.
Mumbai: The fall in India’s construction investments in the past decade was one of the worst among the world’s major economies and is one of the reasons for the economic weakness in the country, said Motilal Oswal Financial Services.

Fixed investments in the domestic construction sector — residential and non-residential — fell to 15.3 per cent of the gross domestic product (GDP) in FY19 from the peak of 19.7 per cent in FY12. Residential investments have fallen faster from 13 per cent of GDP in FY12 to 7.8 per cent in FY19, said Motilal Oswal.

“A comparison of India vis-à-vis the world’s other major economies suggests that the former’s dependence on construction investments is much higher,” the brokerage’s analysts Nikhil Gupta and Yaswi Agrawal said in a report. “At over 15 per cent of GDP, investments in the construction sector in India are more than double of that in the US and Thailand.”

Notwithstanding weak residential construction investment, real prices have grown at an average of 2.7 per cent since 2014 in India, much faster than many other nations, said Motilal Oswal.

“All the economies with higher growth in real prices are either witnessing a good revival in the residential construction sector with its share at highest level in many years, or it has weakened only marginally,” said Gupta and Agrawal. “This combination of very weak residential construction and robustly growing house prices in India is unsustainable, reflecting that the fall in house prices is the most ideal — albeit painful — solution. Otherwise a prolonged slowdown is inevitable.”

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