Job Losses to Impact Residential Property Demand in IT Cities

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Shubhranshu Pani, Managing Director – Strategic Consulting, JLL India

With job losses looming large for those employed in the IT industry, demand for residential realty across Indian IT hubs of Bangalore, Hyderabad, Pune, as also Navi Mumbai in Mumbai and Noida in NCR could be impacted. Among cities, Bangalore and Pune both rely heavily on IT companies for not only job creation but also to drive office and residential real estate demand. Resultantly, these real estate markets face the maximum risk from an IT meltdown.

According to industry body estimates, the Indian IT and BPO sectors employ close to four million people in over 16,000 companies and the middle management is at maximum risk of job loss in these times of disruption, increased automation and artificial intelligence. Professionals aged 30-40 years and above, typically earn anywhere between 20-60 lakh per annum, and form an average of 17% of the population across leading economic centers of Bangalore, Mumbai, Delhi, Hyderabad, Pune and Chennai.

According to Indicus data, this share of population for Bangalore is around 19%, or over two lakh people, in absolute terms. For real estate developers here, these mid-level managers are an important set. Over the years, they have not only set aside huge savings to make down-payments for a house purchase, but their choice of homes would incline more towards mid-premium housing projects, a category that is both lucrative and in demand at the moment.
With this bracket of consumers coming under serious risk of a job loss, there is a possibility that recovery of residential sector in the mid-premium category will be delayed. JLL India’s REIS data on project launches over the last five years confirms this linkage here. The price category that middle management employees typically target are apartments in the price range of INR 4,000-10,000 per sft, which contributed close to 45% of the total project launches on an average in the five-year period until 1Q2017.

Due to the slowdown witnessed over last few years in Indian residential sector, luxury sales have been affected to a great extent. Mid-segment homes, however, were continuing to witness momentum, especially in projects of reputed developers. So, are we looking at a prolonged recovery in the residential asset class, given the current slack in IT job market?

If the current job market scenario continues for a long time, it could quite possibly have a negative impact on residential demand, especially in the mid-premium segment. Affordable and mid-segment homes, however, could see momentum thanks to a strong push by the government, low interest rates and the current slackening of prices.