IT sector slowdown dents housing market

IT sector slowdown dents housing market
23/01/2018 , by , in News/Views

With the Information Technology (IT) sector witnessing a slowdown in demand, leading to fewer hirings and hikes for employees, the impact is being felt in the real estate sector as well. Techies say buying a home is no longer a priority for them in the current climate.

More than 20 employees of top IT firms as well as mid-sized companies, whom The Hindu spoke to, said that even while applying for loans, banks were being extra-cautious with the IT sector, and that many of their colleagues from across the State had dropped plans to buy a home and were investing their funds elsewhere.

Trends in the technology sector like automation and artificial intelligence have rapidly changed the way IT firms do business. Automation of routine jobs has reduced hiring, with the industry now looking for candidates with specialised and niche skills.

Ajoy Mukherjee, executive vice-president and global head of human resources at TCS, acknowledges that automation is coming, as was reflected in the firm’s recent deals.

“Going forward, as far as hiring is concerned, for sometime, it is going to be measured and controlled, based on what the demand forecast is and what delivery teams need. We will go accordingly,” he said, highlighting the current sentiment.

If the Chennai market is anything to go by, share of the IT sector in the total demand for homes had slumped to 30%, according to Srinivas Acharya, managing director, Sundaram BNP Paribas Home Finance.

On one hand, automation means IT firms are taking less office space and on the other hand he uncertain job situation is hurting buying trends in residential market.

It is also affecting the existing home buyers, who are struggling to pay EMIs towards home loans.

“Automation has made IT firms take less office space than before. They are also consolidating their offices at one location and prefer that to being in a SEZ (Special Economic Zone),” said a top industry official, on condition of anonymity.

For the first time in a decade, the number of new launches of residential units fell below 10,000 in 2017, thanks to factors such as the slowdown in the IT sector and political instability, among others, according to a recent Knight Frank India report.

The IT sector’s share of office space absorption fell significantly to 25% in the second half of 2017, from 43% in the second half of 2016, the report said.

Reversal in trend

“The first priority of an IT employee who saw his salary increase in higher digits when the industry was at its peak [with growth rate of 20-30%] was buying a home. At the time, even on-site opportunities were high, which prompted them to invest in a house. Now, the trend has reversed and the industry is seeing just single-digit salary hikes and noone wants to take the risk,” said a senior official of an IT firm.

Sanjay Chugh, founder, Skylines Property Consultants, pointed out that there were three categories of home buyers in the IT sector — first home buyers, who were typically between 25 and 30 years of age, looking to buy their first home and cost-conscious; second home buyers, in the 35-45 age group, looking to upgrade to a larger apartment, and for whom facilities, amenities and developer brand are the criteria; and migrant home buyers / bachelors / newly married / spinsters, who prefer a compact studio or 1 BHK apartment and are cost-sensitive.

“The slowdown in the IT sector has hit the residential market, as employees in this sector became early buyers of homes and builders had factored in a major demand coming from this sector,” Mr. Acharya said.

Over time, builders have taken into account the slowdown in the IT sector and have resized the demand and are waiting for the unsold inventory to sell out, he added.

Mr. Chugh said the real estate sector was hit by other factors such as GST and coming into existence of the Real Estate Regulatory Authority (RERA), but that the sector was optimistic about a revival in the home buying segment in 2018.

Shyam Sundar Rambabu, president, IT wing, New Democratic Labour Federation (NDLF), pointed out that a few employees, who lost their jobs last year, cleared their loans using PF money.

“In the IT industry, PF is quite low. Even though salaries are high, the basic salary and dearness allowance are low. They have other components such as variable pay and special allowance, which are not part of the retirement benefit plan,” he pointed out.

Suresh Krishn, president, Credai Chennai, said that while there were concerns from the IT sector, the trend had been reversing and easing in the past few months.

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