Will the Impending IT Sector Job Cuts Affect the Real Estate Sector in Kolkata?

The IT sector has been a major job driver over the last two decades, but the recent news of large-scale IT sector job cuts is threatening to unnerve the Indian markets, and its shadow is also looming over the real estate sector.

The threat of job losses in IT-enabled Sectors (ITeS) and the Information Technology (IT) is raising concerns about slowing down the demand for residential properties as well as office spaces in prime IT hubs around the country. Sustainable employment and incomes are vital factors for real estate as the majority of home buyers depend on bank loans. Since IT has over the years been a key booster for home and office spaces, job losses would make the real estate sector bleed really bad over the next few quarters.

Kris Lakshmikanth, Founder and Chairman, The Headhunters India, stated that more than one lakh jobs across the country will be lost in the IT/ITeS industry over the next 12 months. Automation, according to Kris Lakshmikanth, is the primary reason, and that with persistent advancements in technology, this trend is likely to continue.

Almost all IT players, in order to slash costs, are releasing personnel even from the managerial positions, which obviously is an adverse drift that will reduce real estate absorption in the coming years. One lakh job losses would roughly translate into a decrease of eight million sq ft in real estate volumes, considering that per employee space consumption in the IT sector today is close to 80 sq ft.

Impact on Kolkata’s Property Market

Job losses could lead to subdued property purchases, particularly in major IT hubs like Bangalore, Gurgaon, Hyderabad, and Pune. Now, Kolkata’s IT sector is smaller compared to these cities, which is why the city’s property market— unlike Bangalore, Pune or Hyderabad —is not largely dependent on IT sector employees. Therefore, the impact of IT sector layoffs is less likely to strike a heavy blow to Kolkata’s real estate market.

However, even if there are no job cuts, the threat of it should be enough to rattle buyer confidence, pushing them to hold back big ticket acquisitions like a home.

Experts Believe That the Situation Does Not Warrant Such Panic

The real estate market is showing signs of a recovery driven by the union government’s thrust for affordable housing under the Prime Minister Aawas Yojana.  Lower interest rates are pushing the sales of residential units as reflected in the quarter ended March 2017. The first quarter of 2017 saw 61,214 units being sold across key markets, as compared to 50,788 units, during the previous quarter.

Moreover, the central government has also assured that there will be no major job cuts in the Information Technology (IT) and IT-enabled Sectors (ITeS), which continue to grow at 8-9 per cent.

How Is Bengal Coping up With the IT Crisis?

According to Principal Secretary Department of IT & Electronics, Dr. Krishna Gupta, the state government is keen to promote innovation and boost start-ups. Speaking at the recently held 4th ICTE B2B Linkages: Enabling Opportunities, organised by CII, Dr. Gupta elaborated the government’s plan to develop six new IT parks including three in Kolkata, and one each in Darjeeling, Kalimpong, and Durgapur.

As stated by CII, the main intention of the 4th ICTE B2B Linkages is to explore prospective opportunities in key areas like Data Centre Solution, Master Data Management, Digital Commerce Marketing, Data Security Solution, Machine Learning, Digital customer experience, Cloud Sourcing Solution, IoT, and Big Data.  The idea is to enable the big IT players to measure the potential of micro, small and medium enterprises (MSMEs) so that they can collaboratively produce the necessary products and services, CII said.

Keeping this mind, the state government of West Bengal has allocated a fund of Rs. 26,000 crores to invest in the development of MSMEs. The government had earlier set up 180 MSME units and is planning to expand its scope even further.

These positive initiatives by the government, as well as private players, are expected to create more job opportunities that — we can hope — will also bolster the real estate sector.

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Over the past two years, the residential real estate markets in India have been passive. In Gurgaon, until the middle of 2016, the city witnessed subdued transaction activity and restricted new supply, with the demonetisation drive further impacting the market. Cautious buyer sentiment, coupled with high levels of unsold inventory, resulted in a slowdown in construction activity and sales.

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