>Indian Real Estate (CITI)

* Resi demand and IT growth seem strongly correlated — We believe the housing boom in the past few years can largely be attributed to strong growth in the IT/ITES sector. Data on strong housing loan growth of 32% CAGR during FY03- FY07, at a time when the Top 3 Indian IT majors’ (a good representative of the sector) employee base grew at 44% CAGR, followed by moderating growth rates in FY08 (Figure 1), suggests the same.

* Slowdown/cuts in IT hiring to adversely impact resi demand — With most global/domestic IT companies going slow on hiring plans, we see this adversely impacting housing demand. Slowing home loan growth (an indicator of housing demand) of 10% YoY on the back of slowing employee growth (14%) for the Top 3 Indian IT companies in 3QFY09 are early signs of this trend, in our view. A deteriorating outlook for Indian IT and our IT analysts’ headcount forecast for the Top 3 IT majors revised down by 2%-17% since Jun 2008, also raise
demand risks.

* Job losses in other sectors will affect demand too — According to a national survey by the labour bureau ~0.5m jobs were lost during Oct-Dec 2008, with the gems & jewellery, transport and auto sectors most affected (Figure 5).

* Pay cuts/lower salary hikes also to weigh on housing demand — In addition to job losses, we see increasing risks of pay cuts and low visibility on pay hikes weighing on near-term demand for homes. According to a survey by Hewitt Associates, projected salary hikes for 2009 in India have dipped to 8.2% vs. an increase of 13.3% in 2008. Sectors with the lowest projected salary hike include employee-intensive sectors such as Retail, IT, Banking & Financial
services and Media/Communications.

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