Opinion: Luxury housing boom in Bangalore: Who are the takers?

Today’s Times of India reported a surge in demand for luxury housing in Bangalore. (Link: http://timesofindia.indiatimes.com/city/bengaluru/Luxury-home-launches-in-Bengaluru-up-531-in-4-years/articleshow/46096719.cms). The report quotes that ‘Homes starting from above Rs 5 crore is where the luxury market actually begins’. And there are 6000 units being built in 2014 alone. Phew, is Bangalore becoming another London or Hong Kong? Data says not yet and there is time for it. Why go out of India, Bangalore’s property market is lot smaller than that of Delhi and Mumbai both in pricing and number of units being sold. But the demand surge and the unusual growth rate it is witnessing can put Bangalore on par with global markets pretty quickly, for many reasons.

Housing and real estate in general are a broader representation of the underlying economy. Like good stocks command higher P/E multiple than broader stock market, towns with higher growth potential may command premium over others. If Bangalore’s luxury housing market is gaining traction, one needs to see who is driving it and how long that would go on.

As Bangalore became IT capital of India, having an office in Bangalore became a must for many global enterprises, either to do their core activities or to outsource their back office work. It attracted many entrepreneurs even from non IT sectors like GE, GM and Toyota to name a few. As the operations of these global enterprises grew, the number of high profile jobs too grew in Bangalore. Probably Bangalore has highest number of expats in India now. Many NRI too made a comeback to their home country and made Bangalore their home.

In the fresh wave of entrepreneurship with businesses going online and internet applications replacing the desktop based applications, Bangalore is emerging out as one of the start-up capitals of the world. It is doing what California does for US, putting product developers, marketers and businessmen together in the same geographic location creating an ecosystem suitable to create next generation businesses. So we see Amazon’s Jeff Bezos directly landing in Bangalore and not begin India’s journey from Delhi.

It is the migrants from outside India are a major source of demand for luxury housing in India, they form first tier of buyers for these houses which costs few to many crores of Rupees. Significant skilled and management resources are migrating from other parts of India to Bangalore to meet the demands of growing global business footprint. They form the second layer of demand. Competing with them are those residing in Bangalore and breaking into higher levels of income. They ensure base demand for luxury housing does not shrink but expand.

 If India is set to grow economically, Bangalore might grow at a higher pace than it. So will be the housing market and luxury housing at the top of it. Don’t blame Bangalore is becoming prosperity island, migrants being the new owners of the town. That is how the economy works. The winner takes it all.

Book Review: Yaana (A Kannada novel) by S L Bhyrappa

This is the story of space travelers. Two astronauts carefully chosen for the mission of exploring space are expected to produce their offspring in spaceship who would continue the mission which runs for decades. The children of those two astronauts, one male and another female are supposed to produce their next generation. When they are set to marry, they raise the question - how can siblings get married? They put forward this question to their parents and history unravels through the notes documented by their parents. Their find out that their parents are not married, were brought together only for this mission. They also learn that their parents are not biological parents but surrogate parents as the kids they raised were born out of embryo created from sperm and egg donors. That solves the dilemma ensuring space mission is unaffected.

Though this novel has scientific background, it is the psychological exploration of characters which takes the center stage (as always). This novel is another feather in Bhyrappa’s cap who has explored people from all walks of life, musicians, politicians, mythological characters and this time the space travelers. A must read for fans of Bhyrappa and this novel is brief (210 pages long), makes it a quick read and transports the readers to an experience beyond the Earth.

Why Obama and why not Putin?

Obama is here in India for republic day celebrations. That is headline news in BBC too. Many countries including neighbors (or rivals?) are taking note and responding as well. And you cannot miss to notice the attention Narendra Modi is getting in the international politics. All this is good news for us Indians. Ours is no more a country of snake charmers and beggars. Our Prime Minister can manage the opposite power poles of this world – Obama and Putin, quite effortlessly because India is no more a country the big brothers can afford to ignore. Also take a look at the show Indian Air force had put up at parade – they combined the aircraft's bought from USA and Russia to make a formation, a rare sight indeed.

The question I was asking myself was, why Obama and why not Putin as chief guest for Republic day celebrations? From business perspective, Obama would come first in the pecking order as we need USA to buy our IT, Pharma and other goods and services. In 2013-14, we exported $39B worth goods and services to USA while our import figures from USA stood at $22.5B. (Link: http://www.commerce.nic.in/eidb/Default.asp) In net, they are the biggest customer to India. With Russia, we have negative trade balance of $1.7B (we import more from Russia than we export). Russia needs us to sell their arms and petroleum products. We are customer to them. But USA is our biggest customer. We need them to buy more from us to improve our trade balance. In business, customers come first, so there is no wonder Obama would get the first invite under Modi's regime.

Politics is more than business. Politics tries to manipulate business (less effectively vice versa). Politics is more about power, power to stimulate, power to control and power to destroy. When it comes to power to destroy, Russia is second to none. (Remember the missile that brought down a passenger airplane in Ukraine – argument here is not about who launched it but to say it was built in Russia). They are the biggest arm supplier to those countries who cannot produce themselves. India too proudly displays the tankers acquired from Russia. Russian fighter jets are superior so we (Indian defense) have been one of the biggest customers to Russia. History says they won the Second World War. If there is going to be another world war they know how to save themselves and kill others. With two difficult neighbors, Putin too would have made sense as our chief guest on Republic Day.

The recent setbacks for Putin and China becoming closer to Russia would have made Modi to send the invite to Obama. Though business would be a priority for him now, I hope he had a talk with Putin like his guest did. (Obama called Sharif before coming to India). If and when there is trouble with neighbors, I think Modi is smart enough not to let Putin take the other side. Hitler did not read his Tolstoy and paid a heavy price. If cautious, Modi need not read ‘War and Peace’. He has proved himself as a good Chief Minister but state governments do not manage national defense, it is a new responsibility for him. Till now he has played his cards well. India needs more of Obama than Putin, unless our neighbors have a different plan.

Hiring fresher and firing experienced: Will this be the model ahead for TCS and Indian IT services sector?

Layoffs are not uncommon in IT industry. But for TCS it was quite uncommon. Theirs was an IT company with Indian values. Whenever things turned bad they always managed well, at least in the past, in retraining the employee and making him/her billable again by re-tooling and showing patience until the employee brought in the revenue. Now the news of layoff in a big scale at TCS shows that they too are running out of options. At the end of the day, TCS too is a business and they too are worried whether they are making desired money on each employee. What TCS is doing would become a new norm and other IT services companies would follow suit over a period of time.

• When billing rates do not go up but the costs do, higher wage employees become a firing target.
• Either salaries in the higher band will start tapering out or the number of employees in that band has to come down to keep up the margin.
• They would also constantly look out for other options to cut the costs of business operations

But the question to be asked is will this be the way forward? Why they are not able to earn on those experienced employees who were the bread winners for the company for so long but redundant now?

First, we need to understand why the billing rate per employee is not going up but reducing. No business or technology remains a taboo for long. IT services too is no more a business only a few companies know and execute. There are numerous service providers now in the market who do it efficiently and willing to do it for a lower margin. That puts pressure on the likes of TCS, they need to become efficient to remain competitive, so shedding fat becomes a necessity. Reducing number of seniors and having more juniors in a team would help deliver the project at a lower cost and help retain profit margin. It would not stop with this but these businesses will explore all avenues to reduce costs such as reducing their employee travel, relocating their offices, cutting down on benefits provided etc. but all of which just provides breather but not a solution to the persisting demand from customers to drive down the costs.

When cloud-based applications become mainstream and software-as-a-service (SaaS) catches up, that would reduce the maintenance activities by a larger extent. It can make IT services a non-mass business leading to firing the seniors but not much hiring at the bottom, a worse situation than now.

If Indian economy catches up and Rupee gains back some of its losses against dollar, let us say it gets back to Rs.52-55 range; it would put further pressure on the margins of the IT services companies which have contracts in dollar terms and cannot hedge completely against currency valuation changes. What will they do to keep their margins up then?

All of this clearly suggests that it makes sense to diversify and not just depend on services as revenue stream. Get into products? No, these companies would lose more money as products business require a different kind of talent management and business strategy which does not gel well with the service business mentality. So what lies ahead for IT services? Resize and reshape in the maturing market. 

And it may be time to sell your TCS stock as the stock may not command the same P/E multiple unless there is a big shift in business strategy which does not seem to be on the radar.

Book Review: Journeys in the Night

This is a collection of life stories of those who are affected by AIDS. Sixteen of the best-known authors of India come together and create this anthology with a common goal of exploring the hidden world affected by the epidemic.

It starts with Nikita Lalwani meeting up with a doctor who is HIV positive but his positive attitude towards life has kept him alive. Kiran Desai goes to open fields of Godavari and opens up the world of highly paid sex workers who are in this profession from many generations and those poor ones who can barely earn a living out of this act. Jaspreet Singh telling ghost stories to the children affected by the epidemic in a HIV positive care home for children easily melts your heart. Salman Rushdie explores the world of Hijras and prefers to call them Ardhanarishwar, I too wonder why not. William Dalrymple meets up with the daughters of Yellamma to hear their stories and so on goes every author going to all corners of India and lending the deceased an ear and bringing us their life stories.

Icing on cake is, there is Introduction by Bill and Melinda Gates and Foreword by Amartya Sen.

This wonderful anthology is the result of Gates Foundation approaching Random House in creating a tradition of literary journalism for a social cause.