he slowdown in the Information Technology (IT) industry, leading to uncertainty in career prospects for employees, is a major cause of the slump in the housing sector.“Confidence has to come back to the salaried segment, and predominantly in the IT industry, for the real estate sector to start growing again,” said Srinivas Acharya, Managing Director of Sundaram BNP Paribas Home Finance Ltd. “Overall economic recovery, the Government’s initiatives on infrastructure development and growth, and a liberal policy towards expansion of the schools network could also help trigger a recovery,” Mr. Acharya told The Hindu.
Typically, almost 30 per cent of the housing demand is from employees in the software sector in the country. Another 30 per cent comes from non-resident Indians (NRIs) living abroad and associated with the IT industry. A host of factors — ranging from slowdown in the global economy to changes in the salary structure, and issues related to renting out their homes — have forced IT professionals to reconsider their attitude towards buying a home for themselves, he said.
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The uptake in both the office and residential markets has been sluggish across India. According to a report by the professional services firm JLL, in the final quarter of 2015, vacancy has risen to 31.9 per cent, “the highest level on record for the Delhi Office market.” The India Real Estate report on residential housing trends by Knight Frank, a real estate consulting firm, shows that 2015 ended with the lowest number of new launches and sales volume across the top eight cities in the country since 2010. Specifically, Mumbai and Chennai saw sales fall by six per cent and nine per cent respectively, while the National Capital Region (NCR) saw a rise of 15 per cent. Any rise in sales across the country resulted from better-than-expected sales during the festive season, according to the report.
Increasingly, NRI professionals in the IT space find remote-managing their let-out homes in India difficult. This has consequently seen a drastic drop in housing demand from these professionals, he pointed out.
“Thanks to these IT professionals and the availability of long-term loans that made housing affordable, the market had been on a healthy incline,” he said. But things have changed now. For one, the slowdown has introduced an element of uncertainty to their jobs. It has also made them somewhat unsure of their choice of location, given their willingness to move cities pursuing new opportunities. All these have combined to contribute to their indecision on buying a house for themselves, argued Mr. Acharya.
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For the Indian IT services industry, which directly employs about 3 million people, the last year has been one of slow growth. Consequently, pressure on billability of professionals has been high, resulting in the forced exits of those employees who are not placed in billed positions with clients. The uncertainty that this pressure brings to a professional’s life reflects in the delayed decisions on long-term investments such as housing.
Further, the inclusion of a number of variable components in the IT industry pay structure has also not helped the cause of sales in the housing sector. Depending on the performance of the company, on the performance of the unit in which the individual works, and on his or her own performance, the variable pay could vary significantly from year to year. This re-jigging of pay packets, he said, has brought in a sense of uncertainty in the minds of IT professionals as to their future earnings. This has indeed made them a lot more defensive in their decision on buying flats. The uncertain variable portion of their pay is also constraining them to align their buying choice in line with their fixed income, he points out. A sustainable pick-up in housing demand, he opined, can happen only if the ground situation improves and the feel-good factor returns.