Thursday, October 30, 2008

Real estate crunch forces IIM-B to experiment with off-campus housing

Interesting to see that the builder has opted to rent out apts instead of selling them off at discounted prices . Is it a sign of the times ? If we go by the yield calculation, the builder is getting a paltry amount in rent as opposed to selling it off and getting 10% in fixed deposits.

Real estate crunch forces IIM-B to experiment with off-campus housing
Archana M Prasanna / Bangalore October 31, 2008, 0:22 IST

Faced with the prospect of escalating real estate costs and the lack of adequate finances, the Indian Institute of Management-Bangalore (IIM-B) is experimenting with “off-campus housing” to accommodate additional students from the next academic year. If the experiment works, it may set a precedent for other IIMs.

With its campus in Bannerghatta already brimming, the institute has decided to take 50 apartments (150 rooms) on lease in a nearby residential building called Ajmera Complex. The plan is to lodge students from the one-year full time Executive Post Graduate Programme in Management (EPGP) — to be launched in April 2009 — in the leased apartments.

“Unless we experiment, we wouldn’t know if this is the way ahead,” reasoned Pankaj Chandra, Director of IIM-B, on the initiative.

IIM-B may also accommodate some students from the Post Graduate Programme (PGP) and doctoral programme at off-campus locations. The institute is planning a bus service from its premises to the off-campus housing to make it convenient for students to travel.

In its recent report, the IIM Review Committee — led by Maruti Suzuki India Chairman RC Bhargava — suggested that IIM faculty and administrative staff residences could be moved to off-campus sites, and accommodation bought/rented there so that “the existing infrastructure could be more intensively used”.

Chandra said the institute had received Rs 29 crore from the human resources development (HRD) ministry for the OBC quota expansion, but the overall expenses of accommodating new faculty and students is expected to be much higher than that. Subsequently, the institute is keenly looking at financial support from corporate houses and alumni.

Unlike IIM-Ahmedabad and IIM-Lucknow, which have two campuses, IIM-B hasn’t had any major construction activity in the last 10 years. Chandra added that the institute has taken up the off-campus option despite plans to commission some construction from this December. The institute has hired an architect for a new hostel facility, 10 classrooms and 24 faculty homes.

The institute has over 950 students from various programmes on its campus at present. From the academic year of 2009-10, the number of students in the PGP and doctoral programme is expected to go up from 640 to 690, the Post Graduate Programme in Public Policy and Management (PGPPM) will have an increased intake of 63 from 33, and the one-year EPGP is expected to have 75 seats, making it an intake of 150 new seats at the campus.

6 comments:

Anonymous said...

"A rising tide lifts all the boats"..and just the opposite is also true...

http://www.pcworld.com/businesscenter/article/153106/
wall_street_beat_financial_reports_confirm_fears_for_it.html

Wall Street Beat: Financial Reports Confirm Fears for IT

Financial reports from vendors including Motorola, Sun Microsystems, SAP and STMicroelectronics, along with economic and IT sector surveys, this week are confirming market watchers' fears that the U.S. is heading into recession, dragging the "Global Tech Industry" down with it.
....
......

Anonymous said...

hi vik,
http://ibnlive.in.com/news/forbes-india-spl-india-inc-cuts-down-on-salary/76813-7-single.html

pls post this article as seperate post.
guru

Anonymous said...

Forbes India Spl: India Inc cuts down on salary
Mumbai: Vinnie Raizada, 28, (name changed) knows the party is over.

Raizada, a finance executive, was living the fast life exactly a year back. He moved from Pune to Mumbai last October when he was offered double the salary, a generous bonus plan and attractive incentives by a financial services firm.

The money was good and quality of life improved as the move enabled him to live well after paying off three loan payments worth Rs 50,000. Fast forward to October 2008 and he has moved back to Pune. Reeling under the credit crisis, his employer asked him to take a 50 per cent pay cut: from Rs 25 lakh per annum to Rs 13 lakh. He packed his bags. "I couldn't survive in that salary in Mumbai," says Raizada.

He went back to Pune, where he has a house, took up a job with a retail bank and settled for a pay cut. "My biggest priority is right now safety," he says. His current boss is less or as much qualified as him. "But I don't have much choice – I am lucky I have a job. Many don't even have this," he says.

Indeed. He was able to land himself a job quickly. As the credit crunch strengthens its hold over the globe, high-flying executives with incredible pedigree (IIT, IIM graduates) suddenly find they are the pariahs of business.
Ex-masters of the universe

These golden boys are taking a good hard look at themselves while companies are doing a reality check. "Many of them have impeccable track records. It's not that they are no longer good. Just that at that price they are no longer attractive," says Vikram Bhardwaj, head, Redileon Search, an executive search firm. He has at least 200 such resumes in his bank.

"Companies just think they are overpaid and are turning them down," says Bhardwaj.

Five years of buoyant economic growth saw attrition rise to the mid-twenty levels across sectors as companies fell over themselves wooing the best executives at double their salaries. "For many junior and mid-level executives, salaries have doubled in the last two-three years," says Sandeep Choudhury, compensation expert, Hewitt Associates. Not any more.

As the stock market plunges and the credit squeeze tightens its noose, the froth in the job market is beginning to settle down. A breathless India Inc. is worried. The hardest hit evidently is the financial services sector. But IT and ITEs, realty, aviation and retail aren't far behind.

With difficult business environment and uncertain future, layoffs and pay cuts have begun to make headlines. An ex-KPMG partner who joined an IT firm recently has supposedly been asked to go – his fat pay packet being the biggest stumbling block.

However, not everyone has grasped the message. Senior executives are grappling with the thought of taking a pay cut. They believe this may send out a wrong signal, a sense of desperation or a step towards discounting oneself in the job market. As a result, some are exploring alternative options.

A few senior executives, with years of experience and personal networks are turning entrepreneurs. Take the case of this Chennai-based 40-year-old investment manager who was recently eased out of his 10-year job. He earned well: Rs 50 lakh salary and as much or more in bonus. He is not working and not even attempting to look for one. He wants to stay put till the credit crisis is over and then maybe start something of his own.

Not everyone has the guts to stick to their guns. The COO of a mid-sized IT firm who earned an annual CTC (cost to company) of Rs 1 crore was in the job market for a few months before settling for a job as vice president of a relatively larger IT firm at around Rs 50 lakh CTC.

Paying anything for salary

Why and how did Indian companies justify paying those salaries?

Of course there was severe war for talent amid hyper growth. More important, there was certain optimism about the future. Everybody expected economic growth to continue and momentum to be sustainable for a long time. As result, the premium to grab the growth, enter the business first and roll out the project fast was huge.

"Everything—including fat pay packets—was justified to maintain the speed," says K Sudarshan, head, EMA Partners. So bidding for talent, unprecedented salary hikes, making hefty counter offers to stem attrition, companies tried every trick in the book to recruit and retain employees.

MNCs were the biggest culprits, especially in IT and banking sector. Not having invested in building talent pipeline, unlike Indian firms, they often jacked up the salary levels substantially to lure away executives. Foreign banks typically paid 30-40 per cent more than their India counterparts to their executives, says Sudarshan.

An AGM at ICICI Bank would get around Rs 25-27 lakh as against Rs 40-42 lakh at say Stanchart Bank. Priya Chetty, vice president of Stanton Chase International, recalls a bidding war in which she saw the salary of a senior executive in the real estate sector go up from Rs 25 lakh to Rs 1.7 crore in a very short span. "A client was willing to offer Rs 1.7 crore and yet the candidate declined," she recalls.

Aviation was even worse. In the last two-three years, monthly salaries of cabin crew had gone up from Rs 20,000 to Rs 40,000, aircraft engineers from Rs 70,000 to Rs 3 lakh, and pilots (captains) from Rs 1.8-2 lakh to Rs 4 lakh plus. In Mumbai, at Mariott Powai hotel, a private airline kept ready more than 50 luxurious apartments for its senior executives. Each cost Rs 5 lakh a month. "Frequent parties, on-the-house dinners were normal," says a Mumbai-based executive who was privy to some of these parties.

This talent shortage and consequent salary surge played out in many ways. At the top, salaries in India and outside have converged substantially in the recent past, say S Rajeeva Kumar, director at Omam Consultants. For example, in a sector like aviation, expat pilots actually come cheaper than Indians – around $8,000-9,000 a month vs around $11,000. This also nudged companies to look beyond India to hire their top talent.

“Companies used different and liberal yardsticks to make salary decisions. For many financial services firms, it was about how much business and relationships you got on the table," says a former executive at Motilal Oswal Securities.

For airlines, not having pilots meant a grounded aircraft with significant losses—a reason why pilot salaries surged sharply. For real estate firms, one-year construction delay meant a project lost, money lost. It was as if time was at a premium—and nobody wanted a delay in their new projects.

As executives worry about difficult job market, employers are breathing a little easier. Puffed up egos and arrogance have vanished. Delhi-based entrepreneur Mukut Pathak who is launching Aryan Cargo Express early next year was worrying about getting people for his start-up. "Earlier you could feel that arrogance when you reached out to them. Now they are writing emails, talk politely and don't have sky-high price."

In Mumbai, a senior executive who oversees a US-based hedge fund seconds this opinion. Eight months back, he was trying to hire a CFO for a company they had invested in. The candidate, working with Kingfisher, was earning Rs 30 lakh CTC. "We were willing to offer Rs 55 lakh with good ESOPs etc but he declined after keeping us hanging for some time," he recalls. Last week he called him asking if that position was still open or if there was any other opening.

Companies are bringing rigour and a renewed focus on performance management. Suddenly, employee productivity, revenue/profit per employee is top of the agenda. Companies across the board from Genpact to Wipro to Bharti are looking at ways to boost per employee productivity. "We can move up the bar and hire better caliber people," says Arvind Agarwal, head (HR) RPG Group.

"Companies had gone about giving salaries pretty unmindful of productivity," says Gangapriya Chakraverti, head (information product solutions), Mercer India. "That's beginning to change," she says. Companies across the board are strengthening performance management system and bringing in greater differentiation in salaries.

Teamlease, India's largest temp firm can feel the difference. "Salary closure is becoming one of the biggest stumbling blocks as companies have hardened stance on salaries," says Manish Sabharwal, head, Teamlease Services. At least 30-40 per cent of placement cases, especially at the senior level, are falling apart. "Junior ones are more willing to adjust," he says.

There is also an increased thrust on raising the variable component in salaries across sectors. While the specifics are still being worked out, RPG Group says it could go up from 10-15 per cent band to 20-30 per cent on an average.

How soon will India recover from the crisis is uncertain. But lessons are being learnt the hard way and an entire generation brought up on an economic boom knows the days of overflowing cheer are over. Sanity has returned to the job market.

Big Fat Salary
1. Finance
2001

2008
Senior level I
30 L

1.3 CR
Senior level II
24 L

1.04 CR
2. IT
Senior level I
35.5 L

1.03 CR
Senior level II
26.6 L

76 L
3. Realty
Senior level I
33.6 L

90.15 L
Senior level II
24.75 L

66.3 L
4. Consumer durable
Senior level I
31 L

76.7 L
Senior level II
19 L

47.1 L
5. Auto
Senior level I
29 L

70.6 L
Senior level II
15.9 L

39.2 L

* Source: Omam Consultants
* Average annual sectoral salaries

(Malini Goyal is Editor, Business and Society, at the new business magazine to be launched by Network18 in alliance with Forbes. Associate Editor Pravin Palande contributed to the story. )

Vik said...

Guru,

Thanks for posting. The downturn is getting severe in the US. American Express laid of 7000, Electronic Arts 600 and so many to follow. It is not pretty now. So hunker down and save as much as you can. A lot of mba's will be jobless and so will a lot of IT guys, mortage brokers, real estate agents. However people like Abdullah and others will keep touting 1 crore properties. Any way you cut it, unless you have some serious savings it is very scary to invest in properties. No job is secure, whether it is US, Europe or India.

mallapottell said...

Big builders like Raheja, Hiranandani are in deep trouble. It is like standing on the edge of a clip and a slight push can take you to the bottom. If they reduce the prices, they may have to compete with the investors who have bought property from them hope of reselling with a huge profit. It is going to be a similar scenario like stock market. What these big time builders do not want is panic reselling on which they wont have any control. Builders lobby is feeding the press with wrong information and hoping that real estate will not suffer the same fate as stock market.

You may find builders agents everywhere, writing false articles in business section of the news papers, spreading false news in business communities, even in blogs dealing with real estate. Those who succumb to their propaganda are likely to loose their hard earned money and live in frustration. I'm seeing some of my colleagues who bought high end apartments spending sleepless nights, visiting psychiatrists, having tough time with their family members as they foresee a gloomy future for themselves and their families.

Anonymous said...

Vik, Mallapotel et al.
No matter what builders do, buyers will not get loans. If they use black money they are toast.

As regards to housing prices, as I mentioned earlier on this blog, there is no force on Earth that can stop the freefall of prices till they come down by at least
50%. In this duration, MBAs are toast. People will realise MBA is the worst degree to have which basically produces nothing and adds no value to the student. Financial Engineering people are in the toilet because of all the scams they created. IT will suffer due to these finance idiots who brough down the whole economy by reselling risk to each other. Salaries will go down by 50% at least very soon. Very less buyers would be there. Goldilocks in the toilet.

I think these culprits should be identified and stoned in front of public. They have made such a big mess that it will not correct in at least 5-6 years and common man will suffer. Their parents were so happy that my son did my MBA and is now getting 1CR. Shame on these worthless creatures.