IT woes to bring down real estate rentals in Bangalore, IT hubs

With IT sector witnessing subdued sentiment amidst pressure on hiring and annual pay rise for employees, the country’s software and services hubs such as Bengaluru, Hyderabad, Chennai, Pune and Noida-Gurgaon in NCR are expected to see 10-20 per cent reduction in the housing rents over the next three quarters, according to an ASSOCHAM paper.

“IT and ITeS professionals aged 30 to 45 years and above, earn between Rs 20 to 50 lakh per annum on an average and typically pay even up to Rs 50,000-1.50 lakh per month as rent, in case they do not own their flats for self use. There is another a range paying between Rs 15,000-Rs 35,000 and upward. All these segments are witnessing easing of the rentals,” said the paper.

Unlike in the past when the fresh inflows of young professionals were pushing the demand for rentals in Bengaluru, the house owners in India’s ‘Silicon Valley’ seem to have done a reality check and are accordingly slashing the rentals, while offering better amenities.

“Going forward, the rentals may ease at least by 10-15 per cent in Bengaluru, Chennai and Hyderabad, while the decline may be steeper, up to 20 per cent in Pune, in the next three quarters. Gurgaon and Noida are also witnessing a correction in rentals up to 10-15 per cent,” the industry association said.

“Gurgaon is holding up because of the demand push from the national capital region (NCR).”

This should come as welcome news to salaried people in these cities. Rents have increased by around 10% per year in most cities in India, partly because of the average increase of 15-20% in the value of the property every year for the last 10-15 years.

A policy of easy money by the US Federal Reserve starting about ten years ago has pushed the prices of most assets across the world into unchartered territory. While this has been ‘good’ for the owners of those assets, it has caused pain to those with fixed or salaried income as the assets were pushed out of their reach.

The US Federal Reserve is now starting to wind back its policy and suck out the estimated $3.5 trillion back from the market. Stock markets and real estate prices in India are expected to be impacted going forward.

A slowdown in IT services business, which accounts for about 10% of India’s GDP, is also pushing down demand for real estate, though NRI investors continue to be present in the Indian market.

According to the ASSOCHAM latest estimates reveals that while the IT sector continues to employ over four million people, mostly in the four to five big cities, the hiring growth has subdued.

“Earlier, the biggest of the IT firms would add tens of thousands of new employees every year along with liberal sops for the existing staff. That scenario has totally changed. Even if these companies may be adding on net basis, the new jobs are not being added in an enthusiastic way,” adds the paper.

“Even in the existing rental deeds, the tenants are seeking better options and no hike in the monthly outgo, quoting the adverse industry outlook. With better options, the market is tilting in favour of the tenants, especially those paying above Rs 50,000 per month”.

“The IT and other services like financials are among the sectors which pay well. Besides, the age profile of these employees is quite tempting for the marketers. They are good spenders and want good life. These factors kept the markets for rentals pushing up, especially in gated and well-equipped housing complexes and societies in Bengaluru, Gurgaon, and Hyderabad. There is certainly a pause visible”, ASSOCHAM Secretary General Mr D S Rawat said while releasing its paper.

In any case, the markets for real estate has gone down in major micro markets owing to a combination of factors. With a large inventory of even ready flats which would be available for use in the next few months, the supply for the rental markets would further improve.