By Akash Pharande, Managing Director – Pharande Spaces
Over the past few decades, Information Technology (IT) has been a primary driving force behind housing sales in many key Indian cities. It is no accident that some of the plushest, most modern residential townships have been cropping up in and around IT parks. The rationale is simple – IT and BPO professionals have significantly superior spending power, even at their starting salaries, than in most other industries.
This fact also resulted in the average age of Indian homebuyers reducing significantly over the years. Before India’s IT boom took off in all seriousness, the average age of homebuyers ranged from 45-50 years. This was because it took a long period of active service in most industries to accumulate enough disposable cash, even for a down payment.
Closing the Age Gap
As a result, Indians only bought homes after many decades of active service. With the Indian IT/ITeS boom, young people earned handsome salaries very early in their careers. Buying a home has always been a basic instinct for Indians when they have the financial means, and banks also introduced home loans to make residential real estate more accessible.
Unsurprisingly, young IT/ITeS professionals started taking the housing plunge in as early as their mid-20s. As a result, the housing industry in and around these IT parks began thriving. However, all these developments were relatively late phenomena.
A Revolution Starts
The Indian IT services sector technically took off in the late 1970s when Tata Consultancy Services joined with global firm Burroughs to outsource IT services from India. SEEPZ, India’s pioneering software export zone in Mumbai, was created in 1973.
However, the SEEPZ model was very centralized and had limited scope to positively impact the economy and livelihoods of software professionals. Only in the early 1990s did the Department of Electronics incorporate India’s first software technology parks across different cities. Thereafter, it also made it possible for smaller IT firms to operate and outsource their services. This was when India’s IT industry released its full potential.
Since then, it has been a significant factor driving the residential real estate market in IT-centric cities like Bengaluru, Pune, Hyderabad, Chennai, and Mumbai. The high demand for quality homes attracted more and more developers who sought to cater to the IT-driven housing demand.
As showcased by these cities, the arrival and proliferation of IT/ITeS has had a multiplier effect on Indian real estate. In the past, the pay scales for employees working for prosperous IT firms permitted a much wider aspirational bandwidth when it comes to home purchases. Moreover, IT-related jobs tend to have considerable saturation, and increased employment in IT hubs inevitably leads to the creation of new residential and retail catchments.
It is because of these positive influences that state governments give considerable tax incentives and other significant benefits to IT companies. Developers of IT projects also get special building permissions such as higher FSI. All these factors have played a significant role in IT services upping the ante for a city’s economy.
Winds of Change
After decades of a veritable dream run, we are starting to hear negative news about the IT industry. While it boomed during the pandemic years of 2020 and 2021, the recession brought on by the Russia-Ukraine war is now causing many global IT companies to ‘right-size’ their workforce portfolios, and salary packages are shrinking.
Does this mean that IT-driven housing demand will also shrink? Quite the opposite. There has been no housing market contraction, and residential real estate continues to thrive in IT-driven cities.
There are good reasons for this:
1. Natural ‘weight loss’: The IT industry went on an unprecedented hiring spree during the pandemic, assuming that the demand for IT services would continue to climb. It is now trying to shed the excess weight gained during the pandemic. However, senior operatives and even promising freshers remain critical to its survival and growth.
2. Still highly relevant – The downturn in the IT/ITeS industry is a temporary knee-jerk reaction to an unexpected turn of events (the Russia-Ukraine war). This does not mean that the IT/ITeS industry has lost its relevance. The sector will pick up again, and Indian IT companies are aware of this.
3. Ruthless competition – The Indian IT/ITeS industry is highly competitive and in a cut-throat race for market share. It cannot afford to downsize more than the competition, as future growth will depend on the number of client portfolios and the human resources available to service them.
4. The business model – Indian IT/ITeS companies have created service delivery models that depend on long-term customer relationships, the ability to constantly expand their service portfolios, and provide service propositions beyond cost savings. The key to all these objectives is human capital attraction, even amid cost management.
5. Government backing – The Indian government is heavily invested in ensuring that the Indian IT/ITeS industry retains its demonstrated superiority among other global peers. Thanks to its resource pool, cost-effectiveness, and supporting policies, India has attained a global leadership position. The country cannot afford to relinquish this pole position. It is important to remember that IT/ITeS is not automatically a Midas Touch – it needs a highly supportive state government to work.
6. Housing is the investment of choice – Finally, housing has emerged as the most attractive investment after the pandemic. Before Covid-19, millennials – a big part of the IT industry – preferred to invest their disposable income in stocks. Today, housing is their No. 1 choice.
While the Indian economy has undoubtedly been hit by the events playing out across the globe, it has proved remarkably stronger than even the more developed countries. The Indian IT industry brings in a revenue of over $194 billion, and its ability to do that depends mainly on the over 4.46 million IT/ITeS professionals it employs.
The housing market will remain robust as long as the economy is in good shape. The IT industry remains a significant part of India’s economic arsenal, and temporary workforce reductions do not mean the sector has depleted its potential.
Like all other industries, it must adapt to on-ground realities, but it cannot operate without people – at least not before artificial intelligence has progressed sufficiently to replace them. As long as enough people remain employed in this industry, homes in and around the major IT hubs will continue to sell.