Karnataka’s local hiring bill that mandates job reservation for locals in the private sector, if implemented, could severely impede the growth of the state’s real estate ecosystem, industry experts who spoke to HT.com said. State capital Bengaluru today ranks amongst the top-3 real estate markets in the country.
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The controversial legislation – Karnataka State Employment of Local Industries Factories Establishment Act Bill, 2024 – seeks to mandate reservation of 50% of management jobs and 75% of non-management jobs for locals in the private sector.
At a very rudimentary level, the number of jobs in the state will plummet which will have a direct impact on its real estate market, sectoral experts said. “Existing companies would move out and many would pick other states for new ventures,” said Sathish Kumar, Chairman of the Karnataka chapter of National Real Estate Development Council. Over 50% of the mid and senior-level employees who come to Karnataka from other states invest in the property market here, he said.
As per property consultancy Colliers, in the January-June period of 2024, foreign-origin companies accounted for nearly 80% of the Grade A office space demand in Bengaluru.
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“Currently 5 out 10 homes sold by us are taken up by non-locals or immigrants from other states,” said Shivam Pathak, who is a sales manager at TG Developers. A majority of these buyers are employed in the IT industry, he added.
According to industry body Nasscom, Karnataka accounts for a quarter of the country’s digital talent and is home to over 11,000 startups and 30% of the total global capability centres in India. The diversity Bengaluru offers in terms of talent is a significant pull factor for GCCs setting up shop in the city, experts said.
After the backlash from top company executives and industry bodies, the state government on July 17 said the Bill has been withheld and the Cabinet would discuss it comprehensively in the next meeting.
Today, Bengaluru dominates India’s commercial real estate market with over 223 million square feet of office stock. At the current pace, the IT capital is expected to continue its lead with 330-340 million square feet of office stock by the year 2030, according to a report by the Confederation of Indian Industry and CBRE.
Also Read: Bengaluru to dominate India’s commercial real estate market with 330-340 mn sq feet office stock by 2030: Report
Shortage of labour
Construction labour shortage has been consistently identified as a challenge for real estate developers in Karnataka.
Experts warned against a shortage of labour in the event the Bill turns into a law.
“About 80% of the construction workers come from outside the state, primarily from regions like Jharkhand, Odisha and Bihar,” Kumar said. He added that a resource crunch during holidays like Dussehra and Chhath Puja are frequent reminders of the state’s dependency on these labourers, in addition to the Covid-19 pandemic.
Rental housing market may also feel the pinch
Industry players also pointed out that Bengaluru’s rental housing market and the paying guest/co-living industry would see a major decline in demand owing to this move.
“About 30-40% of the tenants in East Bengaluru are those who come from other states and have stayed in Karnataka for less than 15 years,” said Puja Agarwal, who is a Brand Partner at Agarwal Estates.
Also Read: Good news for tenants! Bengaluru’s rental housing market records 5-10% average price correction in April-June quarter
