Economic Downturn in Real Estate Turnover

Introduction of Economic Slowdown

Economic slowdown is a business cycle and it’s generally occurring when there is a widespread drop in spending. Many time it’s happen when government issue new bill or act in the country which direct affect to the country’s GDP.

Economic slowdown started in india after the 2016-17 because in the first quarter of 2016-17 india’s registered GDP was 9.4% which is the sign of development but after the first quarter of 2016-17 GDP was fallen frequently.

As per Raguram Rajan statement many reasons behind the recent slowdown but 'ill-conceived demonetisation and the poorly executed GST roll-out' are the two key reasons behind the slowdown.

India has a long-standing problem of not collecting enough taxes given the size of its gross domestic product. Not only is it much lower than developed countries with comparable GDP sizes, it is below even comparable developing countries. India’s tax-to-GDP ration lags behind even Nepal.

The spurt in instances of job losses from automobile manufacturers to biscuit makers has led to the general acceptance of the downturn. This is the third instance of an economic slowdown for India in the past decade after the ones that began in June 2008 and March 2011. The technical term for the same is growth recession. A recession is defined in economics as three consecutive quarters of contraction in GDP. But since India is a large developing economy, contraction is a rarity. of negative growth for India was in 1979. A growth recession is more commonplace where the economy continues to grow but at a slower pace than usual for a sustained period, what India has been facing nowadays.

According to global broking firm Goldman Sachs, as of June 2 as of June 2019, the current slowdown has lasted for 18 months More than half of the decline in economic activity has been driven by a consumption slowdown, which appears to be broad -based, with components other than auto contributing more than twice the effect of autos to the total consumption decline.

Consumption, one of the key growth drivers of the economy, is on the slow lane. Though the slowdown started in high-ticket segments like real estate, auto and consumer durables thanks to the credit squeeze triggered by the NBFC crisis, it has now spread to other sectors. Consequently, the GDP growth rate for the first quarter of 2019-20 fell to a 6-year low of 5%. There was more bad news for investors. Experts say this slowdown will continue for some more time.

Above table shows the economic slowdown starts from 2016-17 and which shown after the first quarter of 2016-17 the GDP was fallen frequently and in the second quarter of 2019-20 the lowest GDP rate in over six years which is slipped to 5%.

Because of the economic slowdown the five sectors are affected most and that sectors are FMCG, AUTO MOBILE, STEEL, CONSUMER DURABLES, REAL ESTATE. This sectors situation is very critical because of the economic slowdown.

FMCG : When some of the biscuit makers talked about job losses due to fall in demand, the entire nation was taken aback. However, it turns out that the situation is not that grim and the entire episode was more about getting a GST rate cut for the sector. Nevertheless, companies such as Hindustan Unilever, Dabur India and Britannia Industries, among others, witnessed fall in volumes in the June quarter. These companies are mainly affected due to a fall in rural demand. While several companies in this segment Bata, HUL, Marico, etc—have beaten slowdown blues or reported limited impact, most continue to be highly priced and therefore, don’t offer much upside potential from current levels

AUTO MOBILE : The much-anticipated cut in GST did not come for the automobile sector during the meeting of the GST Council in Goa last week, leaving manufacturers to fend for themselves. The sales of automobile companies have been declining for at least 13 months. While a slowdown in the economy is the prime reason for falling auto sales, other factors such as the country’s transition to BS VI norms and push towards electric vehicles have further affected sentiments. The share price of heavy commercial vehicle manufacturers like Ashok Leyland and Tata Motors fell 50% and 56% respectively during the past year. Though prospects of these Companies are linked to overall economical cycles, analysts expect a revival in the CV industry during the second half due to pre-buying before BS-VI norms are introduced.

STEEL : High iron ore prices and weak demand have forced many steel makers to cut production as much by 50% in some cases. The steel sector also feels the pinch when auto makers go slow as this sector is the biggest client. In July, for the first time since December, 2017, steel prices went below INR 40,000 per tonne, making it unviable for steel manufacturers.

CONSUMER DURABLES : If FMCG is affected, how can consumer durables remain far behind. Sale of televisions, washing machines and other white goods have gone down just before the festive season. Makers of consumer durables have are clamouring for cut in GST rates. As a reprieve, the government last week scrapped import duty on open cell LED panels which accounts for 60-70% of the cost of televisions. This segment is a mixed bag and there is no pressure on low priced consumer durables and electrical appliances. For example, light electrical divisions of Havells, Crompton Greaves and V-Guard have grown by 24%, 16% and 18% respectively. However, most companies are facing issues in the industrial segments like cables, switch gears, etc due to ongoing troubles in real estate. However, the prospects of companies like TTK Prestige, which caters mostly to the retail segment through its kitchen appliances.

REAL ESTATE : The housing real estate market was already under pressure as non-delivery of projects became a huge menace and the government had to step in. With RERA rules applicable in various states, builders are now finding it tough to lure customers as penal provisions have become stiff. With the slowdown kicking in, consumers are uncertain about future income and are reluctant to make buying decision just yet. Number developers plunged about 46% between 2011–12 and 2017–18 and hence, we envisage that the share of top 10 developers in housing demand across major cities to touch around 50-60% (from 20-40% currently) over the medium term,” says a recent Edelweiss Finance report. In other words, the worst is already over for organised players. Most strong players like Godrej Properties are already pricing in these positives and therefore, don’t offer much upside from current levels.

Introduction of Unorganized Gold Market

India's gold demand slumped 32 per cent to 123.9 tonnes in the September quarter as higher prices and economic slowdown reduced the appetite for the yellow metal, according to a report. And this directly affect to unorganized retail market. The country, which is the second largest consumer of the yellow metal after China, recorded a 66 per cent fall in gold imports to 80.5 tonnes during Q3 of 2019 against the year-ago period. The decline in import was more steep as jewellers met their demand with old imported stock and recycling, the Gold Council (WGC) said Tuesday. In domestic market, gold prices had peaked to Rs 39,011 per 10 grams in September and are now ruling at Rs 38,800 per 10 gram.

During the first nine months of 2019, the country's cumulative gold demand declined to 496.11 tonnes from 523.9 tonnes during January-September period of 2018. The 2018 full year gold demand stood at 760.4 tonnes, the report said. Similarly, the cumulative gold import declined to 502.9 tonnes in the first nine months of 2019 from 587.3 tonnes in the year-ago. During the full year of 2018, India's gold imports had stood at 755.7 tonnes.

In India, there was decline in gold demand due to two reasons. One was sharp increase in prices by 20 per cent towards the end of Q2 and in Q3. The second reason was that, in various countries including India and China, general economic slowdown affected the consumer sentiment,' industry group WGC India Managing Director Somasundaram PR told .

Gold demand fell 32.3 per cent to 123.9 tonnes (including jewellery demand of 101.6 tonnes and bar/coin demand of 22.3 tonnes) during Q3 of 2019 when compared with 183.2 tonnes in the same quarter 2018, he said after releasing the report. Stating that gold imports too fell due to high prices and lower rural demand, Somasundaram explained, 'When demand is low, people recycle gold. Recycled gold in India rose to 90.5 tonnes in the first nine months of this year, as against 87 tonnes during the full year of 2018. This is going to be one of the highest year of recycling.

In terms of consumer sentiments, I don't think things have improved a lot because rural anxiety still continues. While demand increased during Diwali and Dhanteras, we don't think it will be better than last year, some wedding buying will happen and it is picking. It will not be higher than last year because high prices, he said.

Zaveri is not glittering. Its dilapidated buildings and narrow, congested lanes look forlorn, bereft of bustle. Very rarely do you see large families stoic men leading groups of happy women flocking jewellery shops to buy gold for an impending wedding. This year has been particularly bad for many jewellers in the area. Arguably the most valuable gold hub in India, home to over 5,000 jewellery shops, the 150-year-old Zaveri Bazaar has seen a mammoth fall in sales this marriage season, say oldtimers and traditional jewellers. It’s not alone; it’s a national trend.

Others traditional jewellery hubs Thrissur and Kozhikode markets in Kerala, Bow Bazar and Bagree Market in Kolkata, Johari Bazaar in Jaipur and Sadar Bazaar and Hauz Khas in Delhi are all marking decline in sales over the past few years. This is despite India continuing to import record bullion.

“Close to 35,000 marriages took place across 5-6 muhurats in November and December. Despite so many marriages, we did not see a significant spike in gold demand,” rues Kumar Jain, vice-president, Mumbai Jewellers Association. This wedding season has close to 85 muhurats or auspicious marriage hours, jewellers clarify.

Between September and June, jewellers in leading micro-markets hold 70-90 tonnes of gold stock. This year, these traditional jewellers have trimmed holdings considerably, in the backdrop of slackening demand for “new gold” (industry parlance for fresh cash purchases and not exchange of old gold). Zaveri Bazaar does about `170 crore worth of daily sales currently, as against Rs 225-250 crore worth of wedding season sales in previous years. Jain, whose family owns Umedmal Tilokchand Zaveri, one of the oldest shops in the bazaar, feels their patrons are “scared” to purchase new gold using banked funds, lest they come under the prying eyes of income tax officials.

Gold import and consumption data suggests traditional one-shop jewellers are fighting a losing battle. According to some industry-watchers, the shift (in buying preference) to organised players gathered pace after demonetisation last year. Unorganised jewellery shop owners are notorious for dubious sale methods. A good number are presumed to sell low quality (or smuggled) gold, issue fake bills and dodge taxes. Cautious buyers prefer to buy gold with proper bills.

“Buyers with clean money would not want to associate with small, unorganised players anymore,” says Surendra Mehta, national secretary, India Bullion and Jewellers Association. “They are moving to organised retailers now as small, one-shop jewellers are not even able to provide payment options such as digital pay-ins, RTGS or cheques.” Informed buyers insist on ‘hallmark’ a gold purity certification in accordance with Indian Standards specification.

Once the government imposes mandatory hallmarking of gold, over two lakh jewellers would be eradicated from the industry,” predicts Mehta. Today, consumers are also swayed by modern designs and light-weight options offered by organized retailers.

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