Ashwini (name changed upon request) has been working as an IT marketing professional in Bengaluru since last eight years. "After a lot of struggle, last year I found an apartment near my workplace, a 1BHK for Rs 30,000 a month," she said.
However, in November, she became one of the many to be hit by the global economic slowdown and lost her job. Today, she is back in her hometown, Chennai.
For Akash, another IT professional, who was living in a 1BHK in Sarjapura for Rs 25,000 per month, December was a nightmare. "After working for six years, I am now back in Hyderabad," he said.
In the wave of massive layoffs at major tech companies like Google and Microsoft, about 2 lakh IT employees have lost jobs globally over three months. Recently, Microsoft India has started laying off employees in Bengaluru and Hyderabad. Alongside, Amazon India has reduced its headcount by almost 1,000.
This has had a direct bearing on the housing market. Experts say the ongoing fear of a global economic slowdown and major layoffs have contributed to a dip in real estate transactions in Bengaluru.
Most of the major tech companies have large operations in Bengaluru, and such layoffs coupled with an economic slowdown are bound to impact the real estate sector, said Pradeep Joe, chairman of the Bengaluru branch of the Confederation of Real Estate Associates of India (CREAI). "This creates fear among potential investors, especially in the mid-level segment, and holds the potential to disrupt transactions."
In Q3FY23, the Future Sentiment Score by National Real Estate Development Council (NAREDCO), dropped from 61 to 59 in Q4 2022. In comparison, the score was 70 for Q3 2021. The Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index reflects the actual consumer sentiment and how the market performs.
Raghavendra Rao from IndiaAssetz, a real estate platform, explained that like during the pandemic-induced lockdown, economic slowdowns create a domino effect in sectors such as real estate. "Most people who lose their jobs create apprehension in their circles, a major contributor to” the temporary restructuring of the real estate market, he said.
On the other hand, Santhosh Kumar, vice chairman of property consultancy ANAROCK believes this is a passing phase, arguing that recent layoffs could have some impact, but this is usually a lull period in hiring and it is normal to see a falloff in rental demand.
Additionally, experts say, rising interest rates had a big effect. So far in FY23, the Reserve Bank of India (RBI) has raised the repo rate by 125 basis points to 6.25 percent. The policy rate of the RBI is presently at its highest level since August 2018.
Joe added that government intervention is crucial, and while homebuyers were expecting relief from the budget, not much has changed.
After six months, Bengaluru rental demand flattens
Kiran Kumar, vice-president of Hanu Reddy Realty, a Chennai-based real estate firm active in the southern markets, said added that since Q4FY23, Bengaluru’s real estate sector has witnessed a marked dip in demand for rental apartments, hit by a double whammy of low affordability and global headwinds.
"Particularly in places like Richmond Town and MG Road, which are closer to the central business district, the demand for rental apartments has dropped by 15 percent, given that these places have low affordability today coupled with rising interest rates," Kumar added.
Last year, Bengaluru saw the highest spike in rental yields, rising from 5 percent to 7 percent. Investors say renting in the city has become expensive. Brokers say there has been a large addition to inventories to areas like Whitefield. However, along with that, being an IT corridor, the high attrition globally has also affected the rental segment there.
Amit Goenka, CEO of Nisus Finance, a Mumbai-based financial services company with a focus on real estate, said, "Ready-to-move-in inventories have been completely absorbed, and a lot of people have moved into their homes already. However, the major effect in Bengaluru comes from the global headwinds."
Goenka said after the IT boom between 2020 and 2021, several IT companies and startups have started axing their workforce in tune with the global slowdown. Bengaluru has a large migratory population, and the recent layoffs have dented sentiment, with the IT belt taking the biggest hit.
Goenka added that for rentals in places like Whitefield, Sarjapura, Outer Ring Road, Manyata Tech Park and Hebbal, developers and owners have already started doling out discounts of 5-10 percent. "The rent of a 2BHK in these areas has dropped from Rs 40,000 to about Rs 25,000. The demand for rentals in Bengaluru has not just flattened, but it will dip by about 5 percent in the coming months," he added.
In Whitefield, rent for a 1,200 square feet 2BHK apartment is between Rs 25,000 and Rs 27,000, with some going as low as Rs 15,000, as seen on the NoBroker platform.
Investors say the economic slowdown has about half the role in the sudden flattening of rental demand in the city. In Bengaluru, the conversion ratio for rent-seekers has fallen from 8 percent to 6 percent, while in Mumbai it continues to be at 8-9 percent.
The conversion ratio is the number of potential tenants who converted as lessors as a percentage of the total number of people who visited the apartments put on rent.
"For the next 12-18 months, I do not see how the rental demand can pick up in Bengaluru," Goenka added.
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