Wednesday, May 24, 2017

Job crash in IT industry may crash Pune real estate market

No buyers for the flats in 40 - 80 lakhs budget in Pune real estate market. 
Out of 39,000 flats available for sale 
only 3,500 were booked in the 1st quarter of 2017:


Job crash in IT industry may crash Pune real estate market

According to Moneycontrol news story, Pune real estate market may not come out of ongoing longest slowdown.

The reason is the job crash in Indian IT industry.

No new job creation and fear of losing jobs has hit the first time home buyers market.

Result is - there are no buyers for the flats in the price range of Rs. 40 - 80 Lakhs.

That's why - according to PropEquity - in the 1st Quarter of 2017 - out of 39,000 flats available for sale - only 3,500 flat were booked.

It means that despite low home loan interest rates and trust building initiative like MahaRERA - Pune real estate market may never revive.

The builders in Pune - and in other cities in India - which were banking on IT industry - are terrified.

To know more, please visit - I-T job crash in India sends shivers down the spine of realty sector

Related Story:


1) Like Hinjewadi Techie Boys - I don’t Own a Flat - So What?

2) The best investment opportunity in Pune

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16 comments:

  1. This was bound to happen. If you see mechanical or automobile engineering field now, everything is being done by robots while the skilled engineers do the work which robots can't. For so long Indian IT found it cheap to hire lot of people thanks to billing which is being done in USD. Infact, in no other sector I have come across has something called as 'Bench'. Either you fire them or put them to use, no benches in other sector which helped them to remain lean always.
    Also, atleast 70% of revenue comes from US for Indian IT cos. I have seen where American employee trained Indian & then he got fired as Indian was working at cheap cost on H1B. Now since Trump has come, he is just fulfilling his election promise - to give back jobs to American people. So no point in blaming Trump either. He is US prez & he will do what is best for US people. It was Indian IT cos who were simply wagging tails to their paymasters in US.

    Unlike other sectors like manufacturing where machinery, logistics, transport forms significant investment, for IT it's just people. So easy to hire & fire to cut costs.

    Here are some of the latest news about IT sector in India -

    Cognizant makes it difficult for Indian employees to get green cards -

    Cognizant Technology Solutions (CTS) said it will no longer be filing applications for green cards under the EB2 and EB3 routes
    Cognizant's move to halt the processing of EB2 and EB3 applications could dash the hopes of many H-1B visa holders

    http://timesofindia.indiatimes.com/business/india-business/cognizant-not-to-apply-for-green-cards/articleshow/58816874.cms

    Indian IT layoffs to go on for 2 yrs -

    http://www.business-standard.com/article/companies/pink-slips-likely-for-manual-testing-indian-it-layoffs-to-go-on-for-2-yrs-117051500185_1.html

    As costs pinch, is Cognizant targeting some women employees? -

    http://www.moneycontrol.com/news/business/companies/as-costs-pinch-is-cognizant-targeting-some-women-employees-2287455.html

    Infosys to fire its poor performing techies soon -

    http://www.indiatvnews.com/business/india-infosys-to-fire-its-poor-performing-techies-soon-380918

    Bots take over jobs of 12,000 employees at Wipro -

    http://www.moneycontrol.com/news/business/bots-take-over-jobs-of-12000-employees-at-wipro-2287811.html

    IT job cuts: After Wipro, Infosys, now IBM lays off thousands in India -

    http://www.business-standard.com/article/companies/it-job-cuts-after-wipro-infosys-ibm-set-to-lay-off-thousands-in-india-117051601132_1.html

    Nearly half of IT workforce to become irrelevant in coming years: McKinsey report -

    http://www.timesnow.tv/business-economy/article/it-cognizant-infosys-wipro-mass-layoff-fite-union-it-employees/61562

    IT's layoff crisis may be bigger than 2008 recession -

    The number of jobs lost is unprecedented in the history of India’s IT industry and perhaps larger in magnitude than the 2008 global economic crisis

    For the thousands of employees of the Indian IT industry who have been handed pink slips over the past couple of months, the future is bleak.

    http://tech.economictimes.indiatimes.com/news/corporate/its-layoff-crisis-may-be-bigger-than-2008-recession/58691201

    Ravi,
    If you remember, we used to discuss how when loan is taken for 20-25 years, one needs to be sure about the financial resources during that period. In my personal capacity I did ask some IT yedas not to go & buy flat with meagre downpayment, that too mostly taken from parents & then take big loans for 20 or more years. On social front also, it was IT which started DINK concept (double income, no kids) & for marriage, IT gal wanted IT guy & vice versa. As both are from IT, one salary used to go on EMI, while other salary used to take care of expense & investments, if any. This too was bad practise.

    There is a reason why it is said to buy a house when you are close to 40. Pity the yedas who take big loan just because they get someone to sleep around &/or to increase artificial social status on rented money.

    ReplyDelete
  2. IT has entered a bad phase with no on-sites for junior level (income below 8lakhs ) and mid level who was getting 20+ lakhs getting fired. Who can afford to pay 40 - 80k as emi.

    Note the interest rates of 8.35% are not going to be same for the whole tenure.

    The other day I read an article which says real estate in Pune is over priced and only people with 25+ lakhs it's recommend to buy.
    Link below
    http://m.economictimes.com/wealth/invest/is-home-loan-emi-jeopardising-your-other-financial-goals-heres-what-to-do/articleshow/58762735.cms

    ReplyDelete
    Replies
    1. Thanks for sharing above link, Sandy Podi! Everyone must read it.

      Delete
  3. Greed always has end. When it ends, artificial bubble starts to develop. Bursting this bubble triggers downfall. Harder the greed, harder the downfall. This is natural phenomenon. IT sector is no exception.

    I believe
    "When the time is good, expect more rainfall than you can dream of"
    "When the time is bad, things become worse than our calculations"

    IT sector is literally caught into deadlock. Anti outsourcing, H1B problem, automation, high salaries, GST, potential competitors from china, Kazakhstan, East Europe, Brazil all these are badly hitting bottom line. In future, IT company with diverse skills into futuristic technologies and having ability to fit into client's pocket with handful of skilled employees will do good.

    A thought of product development, innovation is emerging from think tank. But with this shift, it's impossible to accommodate lakhs of engineers at a same time. For example, Google employs 1/10th of people employed by Infosys. Yet Google stands with 10+ times revenue of Infosys. This is the difference of product based & arbitrage based company.

    Expect more bad news in IT sector in coming years. With GST, inflation is going to shoot up. Since millions of people are directly/indirectly dependent on IT & Automation, machine learning kicking in; BFSI, retail & auto sector should meet subsequent slowdown. India will be facing un employment issues in coming time. People will fall from ninth cloud on ground. Overall corrective impact on Real Estate too.

    ReplyDelete
  4. Interestingly, GM has shut its' operations in India. Does it mean that they no longer believe Indian growth story?

    ReplyDelete
    Replies
    1. GM was a bad marketing strategy with product line which had old models and service which was the worst. Hence failed, Indian auto market is poised for strong growth. GM will continue servicing export markets from Pune and other India regions. Though it shutting down India operations will lead to job losses

      Delete
    2. GM has not shut it's operations in India. They will continue to manufacture the cars & use India purely as export hub to cater to South American & ASEAN countries. The factories, workers stays, only the showrooms closes. However, with new companies like Kia, Lexus, Peugot coming to India, these people can simply switch over just the way they did post closure of companies like HM.

      Delete
  5. TheMonk , Ravi - IT sector is the backbone which has driven economy for last couple of decades and driven growth of anciliary products and services . Automation is making jobs redundant in IT and it will have domino effect on all sectors all over the world . What honest jobs were/are available to millions of educated people ? The only sector which is immune to automation is politics and bureaucracy . Not having work for humans has grave consequences for family , society et al . - concern for real estate is miniscule compared to this threat for human existence itself .

    ReplyDelete
    Replies
    1. Same thing about automation took place in proper engineering sectors (IT can't be called engineering) like mechanical, automobile etc. & lot of workers job is today done by robotics. However, newer skills were made & people were absorbed with different job profile. Problem with IT is unlike mech or auto, they don't develop product, especially Indian IT cos. What they do is simply do something at cheap cost compared to US. Had Indian IT cos developed their own product & sold globally & not just to US, these companies would have been strong even today.

      Imagine Indian OS & server editions atleast equivalent if not better than Windows for 30-40% the price. You have billions of US$ market in Latin America, East Europe, Africa & ASEAN. Due to anti-competitive practices done by Microsoft, even West Europe would have been a major market.

      Indian IT cos were never a tree, they were mere creepers hanging on some American trees. Sorry but this is a fact.

      Indian IT cos can not only survive but also grow if they get out of mere outsourcing model & get into serious product development & create their own markets. One good eg. is that of Quickheal Technologies, these anti-virus guys. Giving this eg. as it's Pune based company, going all out & taking fight head on with Nortons & Kasperskys of the world.

      Delete
    2. If other engg sectors had the capacity to absorb millions of engineers we would not have seen them shifting to manual testing jobs in IT . Every sector has product and services - both are needed . Automation is killing jobs all over the world . The nature of product is such that it employs hardly one tenth of people in service industry . The future is lesser human workforce whatever industry you are in because you are replaceable by machine .

      Delete
    3. It depends upon whom you call an engineer. Anyone walking around with BE certificate can't be called engineer, thanks to sadak chhap colleges which we have. These have come up faster than mushrooms in rainy season. Fact is there is always demand of skill & to harness this, you need to get out of your comfort zone. Many people are too laid back & have jo chalta hain, chalne do attitude. This helps only when things are smooth, once competition within kicks in, it takes these people by surprise.
      So trick is to keep yourself employable with time.

      Delete
  6. "Pune is over priced and only people with 25+ lakhs it's recommend to buy."

    - This factor is based on affordability & not value for money. If EMI is 65k & same flat is available on rent for 15k, does it make sense to buy even if one is making 25+L/annum ? Better to put remaining amount in good yielding assets which will easily offer 10-11% /annum + tax benefits.

    Infact, after long period last Sunday I met my friend who is a commercial pilot working in one of the top airline in the country. He was asking whether he should renew his rent agreement by 11 months or 33 months, didn't even speak about buying !

    Also check similar article -

    Why It's Plain Stupid To Buy A House In India -

    The crash of the Indian housing market is imminent.

    http://www.huffingtonpost.in/manu-rishi-guptha/why-its-plain-stupid-to-buy-a-house-in-india/

    ReplyDelete
    Replies
    1. Agreed it does not make sense to buy as an investment. RE investment returns (capital appreciation) are less than 8%. And rental yields being very low. <2%
      One has to factor in the below
      1. Rent = 15 k ( which includes maintenance which owner pays ~ 2.5 to 3.5k permonth plus property tax which owner pays 1k permonth )
      2. Emi of 60k plus would also mean you pay 2.5-3.5k per month additional plus 12-17k as property tax equating to 1k) so net outflow of 64k.
      Smart people understand the difference hence invest in other asset classes.

      Delete
    2. It has become very difficult for existing home loan borrowers to change their lender as property prices have fallen & falling further due to which refinancing can take place at much lower valuation. This means the borrower is stuck with his existing lender for long duration with higher interest rates. Now see this news -

      Recently, we received an enquiry from an applicant who wanted to switch his home loan from a lender who was not reducing the interest rates to one who was offering cheaper loans. Though this seems a business opportunity for any mortgage broker, beware of the circumstances in the valuation market in India right now.

      This gentleman with a fat pay cheque owns a property in Mumbai. The property is sold by one of the topmost developers in Mumbai. Banks simply refused to refinance his loan outstanding. The reason cited was low property valuation today. Most lenders are citing up to 20 to 25 percent lower property valuation as compared to a year ago. The bankers are quick to point out that the builder himself is selling at much lower price than the price he sold in CY2015.

      For the beginners, home loans have an important factor called loan to value. Banks lend up to 75 percent (for more than Rs 75 lakh of loan amount) to 80 percent (for less than Rs 75 lakh of loan amount) of the value of the property. This should be best understood with an example.

      Say you have bought a property at Rs 2 crore. And the registration happened at that price two years ago. You funded that property with 75 percent loan – which translates into a home loan of Rs 1.5 crore. Now after two years, the lenders value that home at Rs 1.5 crore due to 25 percent correction in home prices. If you try to refinance your home loan, the maximum loan you will get at 75 percent loan to value ratio is Rs 1.125 crore.

      Under the above circumstances, many sale transactions are getting cancelled and banks have to let go of their business more often than earlier. Even old clients with great profile, fat pay package, wealth relationship, super credit score is of no use now.

      It is not only your profile as a borrower that matters but also the property you are looking at. Be sure about the valuation element and do not blindly offer token money to sellers looking at historical prices. You may be in for an odd shock. Though the rates are low and property prices are falling, do not test the depth of the waters with both feet.

      http://www.moneycontrol.com/news/business/personal-finance-business/low-property-valuations-may-spoil-your-home-buying-dream-2289809.html

      Delete
  7. This is latest Pune IT specific news -

    IT industry layoffs: FITE sources say sector may see 10,000-15,000 jobs lost in Pune alone -

    Recruiters have predicted that the IT industry may cut as many as 2 lakh jobs in this fiscal. FITE sources have told the Indian Express that as many as 10,000 to 15,000 IT employees may lose their jobs in Pune alone. The sector employs some 3.5 lakh people in Pune.

    http://www.financialexpress.com/industry/it-industry-layoffs-cognizant-staff-take-tech-giant-to-labour-commissioner-fite-sources-say-sector-may-see-10000-15000-jobs-lost-in-pune-alone/687545/

    ReplyDelete
    Replies
    1. TheMonk, thanks for sharing the news - 10,000 to 15,000 IT employees may lose their jobs in Pune.

      Delete