Temporary working capital

Is the IT/ITS dream outdated?

Over the past decades, the information technology (IT) and IT services (ITeS) sector has been the main driver of housing sales in many key Indian cities. It is no coincidence that some of the most luxurious and modern residential townships have sprung up in and around computer parks. The reason is simple: IT and BPO professionals have significantly more purchasing power, even at their starting salary, than most other industries.

This fact has also led to a significant reduction in the average age of Indian buyers over the years. Before India’s IT boom took off in earnest, the average age of homebuyers ranged from 45 to 50 years old. Indeed, it took a long period of active duty in most industries to accumulate enough cash on hand even for a down payment.

Closing the age gap

As a result, Indians bought homes only after several decades of active service. With India’s IT/ITeS boom, young people have earned handsome salaries early in their careers. Buying a house has always been a basic instinct for Indians when they have the financial means, and banks have also introduced home loans to make residential real estate more accessible.

Not surprisingly, young IT/ITeS professionals started diving into housing as early as their mid-twenties. As a result, the housing industry in and around these computer parks began to flourish. However, all of these developments were relatively late phenomena.

A revolution begins

India’s IT services industry technically took off in the late 1970s when Tata Consultancy Services partnered with global firm Burroughs to outsource IT services from India. SEEPZ, India’s pioneering software export zone in Mumbai, was established in 1973.

However, the SEEPZ model was highly centralized and had limited scope to positively impact the economy and the livelihoods of software professionals. It was not until the early 1990s that the Department of Electronics incorporated India’s first software technology parks in different cities. Subsequently, it also allowed small IT companies to operate and outsource their services. It was then that the Indian IT industry unleashed its full potential.

Since then, it has been a major factor in the residential property market in IT-centric cities like Bengaluru, Pune, Hyderabad, Chennai and Mumbai. The strong demand for quality homes has attracted more and more developers who have sought to meet the demand for housing driven by information technology.

As these cities show, the arrival and proliferation of IT/ITeS has had a multiplier effect on Indian real estate. In the past, the salary scales of employees working for successful IT companies allowed for a much wider ambitious bandwidth when it came to home purchases. Moreover, IT-related jobs tend to be considerably saturated, and the increase in employment in IT hubs inevitably leads to the creation of new residential and commercial pools.

It is because of these positive influences that state governments provide huge tax incentives and other important benefits to IT companies. IT project developers also get special construction permits such as higher FSIs. All of these factors have played a significant role in IT services upping the ante for a city’s economy.

A wind of change

After decades of a true dream race, we are beginning to hear negative news about the computer industry. While booming during the pandemic years of 2020 and 2021, the recession caused by the Russian-Ukrainian war is now forcing many global IT companies to “adjust” their workforce portfolios, and salary packages are shrinking.

Does this mean that IT-related housing demand will also decrease? Rather the opposite. There has been no contraction in the housing market, and residential real estate continues to boom in IT-focused cities.

There are good reasons for this:

1. Natural “weight loss”: The IT industry has seen an unprecedented surge in hiring during the pandemic, assuming demand for IT services will continue to rise. He is now trying to get rid of the excess weight gained during the pandemic. However, senior agents and even promising newbies remain critical to its survival and growth.

2. Still very relevant – The slowdown in the IT/ITeS industry is a temporary and impulsive 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, and Indian IT companies are aware of it.

3. Cutthroat competition – India’s IT and IT industry is highly competitive and in a fierce race to gain market share. It cannot afford to downsize more than the competition, as future growth will depend on the number of customer portfolios and the human resources available to serve them.

4. The Business Model – Indian IT/ITeS companies have created service delivery models that rely on long-term customer relationships, the ability to constantly expand their service portfolios and deliver services beyond cost savings. Key to all of these goals is attracting human capital, even in the midst of cost containment.

5. Government Support – The Indian government is heavily invested in ensuring that the Indian IT/ITeS industry retains its proven superiority among its global peers. Thanks to its pool of resources, cost effectiveness and supportive policies, India has attained a world leading position. The country cannot afford to give up this pole position. It is important to remember that IT/ITeS is not automatically a Midas Touch – it needs a very supportive state government to operate.

6. Housing is the investment of choice – Finally, housing has become the most attractive investment post-pandemic. Before Covid-19, millennials – much of the IT industry – preferred to invest their disposable income in stocks. Today, housing is their number one choice.

While India’s economy has undoubtedly been impacted by events unfolding across the world, it has proven to be remarkably stronger than even the most developed countries. India’s IT industry generates over $194 billion in revenue and its ability to do so depends primarily on the over 4.46 million IT/ITeS professionals it employs.

The housing market will remain strong as long as the economy is doing well. The IT industry continues to be an important part of India’s economic arsenal, and the temporary workforce reductions do not mean that the sector has exhausted its potential.

Like all other industries, it must adapt to the realities on the ground, but it cannot function without people – at least not until artificial intelligence has advanced enough to replace them. As long as enough people remain employed in this industry, homes in and around major computer centers will continue to sell.

(The author is Managing Director of Pharande Spaces, a leading construction and property development company famous for its township projects in West Pune and beyond)