Friday, June 30, 2017

Is IT layoffs a bad news for residential realty?

As per an estimate, India’s Information Technology (IT) sector will see around 1.75 lakh to 2 lakh* annual job losses in the next three years. The biggest challenge ahead for the industry will be retaining 50-60 percent of its workforce after a significant shift in technologies. Analysing such figures, about five to six lakh people will become redundant due to artificial intelligence in the next three years.

Real estate and IT economy
For the last twenty years, IT has been one of the largest employment generators in the country. As per an estimate, the sector along with Business Process Outsourcing (BPO) employ close to four million people in over 16,000 companies. 
IT professionals, aged between 30 and 40 years, usually earn 20 to 60 lakh each year, forming an average of 17 percent# of the population across leading tech cities of Bangalore, Hyerbadad, Mumbai, Pune, Chennai, Gurgaon and Noida. Many of these professionals are prospective homebuyers who set aside huge savings to make down-payments for a property purchase. Mostly, their choice of homes is mid-premium housing projects. 

lay off in India

Possible impact 
Dip in residential demand across IT hubs: With job loss predictions across IT hubs, the demand for mid-segment residential properties across Bangalore, Pune, Hyderabad, Gurgaon and Noida could be adversely impacted.
As Bangalore and Pune rely the most on IT majors for not only job creation but also to drive office space consumption and residential demand, these markets are expected to feel the heat first. As per a report by JLL India, the IT population in Bangalore alone is around two lakh. The biggest buyer category in the city, IT employees, has contributed close to 45 percent of the total project launches in the last five years.
Decreased commercial absorption: The loss of jobs is expected to have a ripple effect on all real estate segments. With lesser headcounts in IT majors, the need for ‘Grade A’ offices, retail spaces and industrial properties will be reduced by an equal or greater amount. Subleases, reduced rents and increased vacancy levels of commercial office spaces can be expected in major IT hubs of Pune and Bangalore.
Emerging IT cities to suffer as well: Increased automation in leading IT enterprises could have a negative impact, even in emerging markets like Navi Mumbai and Coimbatore. Recently fueled by the final bid for the International Airport (which led to a 16-17 percent increment in total registrations within a fortnight), residential sales in Navi Mumbai may take a back seat for a while as the IT professionals make up at least 30 percent of the buyer base in the satellite city.
Investors to adopt 'wait and watch' approach: Even if fewer job losses get reported, the news of expected workforce cuts could intimidate short-term investors who are expected to adopt ‘wait and watch’ policy in aforesaid markets.
Diluted buyer sentiment in other metros: Kolkata and Ahmedabad’s IT sectors are smaller compared to major tech cities; however, they may feel the heat of the IT meltdown. Even if no major job cuts are expected in these cities, the threat of it could be enough to rattle buyer’s confidence, pushing them to delay big-ticket acquisitions like a home.

What does the future hold?
With a chunk of consumers coming under serious threat of job loss, there is a possibility that mid-premium residential sector, which was already hit badly by the Centre’s demonetisation drive, may take a few more quarters to recover. Industry experts feel that due to job insecurity in the sector, prospective homebuyers who were thinking of investing in holiday homes or commercial space may choose to skip buying property till 2020.
However, many experts believe that the prediction does not warrant such panic. Driven by the union government’s thrust for affordable housing under the Prime Minister Aawas Yojana (PMAY), lower interest rates are expected to push the sales of residential units and nullify the layoff aftermath in the future. 

* As per an executive search firm 'Head Hunters India Click'
# As per a report by JLL India

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