How Employment Influences Real Estate Demand

How Employment Influences Real Estate Demand
28/07/2016 , by , in EXPERT ZONE

One of the main factors that drive demand for housing in a particular locality is employment growth. An area where a number of companies are opening up job opportunities for the population becomes a magnet for residential property demand. This makes such locations of high interest to residential property developers. However, they are not targeting only end-users, but also investors.

samPeople who are employed in these companies want homes near to their places of work. If the area has only just begun emerging as a workplace nexus, property rates will be lower than in the more established areas of the city. This means that a significant number of these people will choose to buy their homes there, but those who do not will still be on the market for rental homes. Real estate investors depend on rental demand, and tend to snap up a lot of new inventory in order to cater to it.

Developers do a lot of research before they decide to launch a residential project in areas which are seeing growth in employment opportunities. Apart from the number of jobs being created, they are also interested in the nature of these jobs – specifically the salary ranges that are being offered. For example, support or back-office category jobs will not offer large salaries, meaning that developers will need to focus on launching budget housing.

On the other hand, large IT companies and other corporate firms will create high-level C-suite jobs offering higher salaries, as well as middle management jobs. Residential developers will therefore be able to launch budget and middle-income housing as well as luxury home projects. This phenomenon is amply illustrated by the real estate development in and around areas like Pune’s Nagar Road.

Viman Nagar, the first areas to come into prominence on Nagar Road, was aptly named for its proximity to the city’s airport. Today, it is known as a high-end housing location, but initially it catered primarily to the demand from BPO employees. For this reason, the first housing projects in this area were targeted at mid-income buyers.

However, when Pune’s Information technology sector began taking off seriously, software companies began spawning high-salaried jobs along Nagar Road, which led to the emergence of Kalyani Nagar. This led to considerable demand for luxury homes, which developers could cater to while land supply lasted.

Today, Viman Nagar and Kalyani Nagar have almost exhausted their potential to host new projects, and developers in Pune have focused on the new adjoining growth corridors. Areas like Charoli in close proximity to the airport along Nagar Road have sufficient land availability, which has made large township projects possible. This location is now catering to the IT-driven demand from Kalyani Nagar and Magarpatta, as well as the demand from Pimpri-Chinchwad’s manufacturing belt.

In a growing country like India, the phenomenon of employment driving real estate will remain a constant for several decades to come. As the country’s economy picks up speed, we will see more and more pockets of real estate growth cropping up alongside the costlier established areas of our cities. In most cases, these pockets will initially grow on the back of demand for budget and mid-income housing.

It can take anything between 5-10 years after the initial burst of development for the area to become an ‘established’ location, after which demand for housing gradually evolves and begins to encompass luxury housing as well.

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