Companies offload real estate as CXOs opt for fatter salaries

MUMBAI: For top executives of Indian and multinational companies, the posh accommodation that companies used to provide as a perquisite to attract talent is no longer such a compelling proposition.

Many executives who aren’t too keen on this option prefer a big hike in pay packages to compensate. While expats working in India still favour company accommodation, most Indian executives want the flexibility their own house provides.

“The trend of not preferring company-owned accommodation has its origins in the cumulative impact of developments related to tax treatment of such perks, whereby company-owned housing started getting taxed in the hands of the employee at 15% of salary in metropolitan cities (10%/7.5% at other places) irrespective of the fair rental value of the accommodation. Employees would find it more beneficial to get an HRA and claim exemption for rent paid,” said Sonu Iyer, Tax Partner & People Advisory Services Leader, EY India.


Identifying this trend, big corporate houses such as Hindustan Unilever, Citibank, Standard Chartered Bank, Cadbury’s and Nestle have monetised real estate assets located in prime locations of Mumbai, New Delhi, Gurgaon, Bengaluru and Chennai over the last few years.

“We provide an HRA (house rent allowance) component to our employees in the overall salary structure. We have moved away from providing physical housing benefits to the employees,” said a spokesperson of Hindustan Unilever in an emailed response to ET’s query.

HUL has sold several of its residential apartments over the past few years, especially after it shifted its headquarters to Andheri from south Mumbai in 2010. In 2012-13, an exceptional year for the company, it made a profit of Rs 672 crore through sale of real estate. That included its erstwhile headquarters, Lever House, in South Mumbai’s Churchgate, sold for about Rs 300 crore and a guest house and training centre, Gulita, spread over an acre on Mumbai’s Worli seaface, sold for Rs 452 crore.

Immediately after this, the company put more than 55 high-end apartments in prime localities of Mumbai, Kolkata and a land parcel in Hyderabad on the block. Also in 2012, Standard Chartered Bank’s sale of a sea-facing duplex apartment in the Samudra Mahal building at Worli in Mumbai for Rs 40 crore surprised the property market as it fetched Rs 1.10 lakh per sq ft, outpacing an earlier record.

Prior to this, joint owners Standard Chartered Bank and HSBC had sold Bishops Gate, a five-storey residential building in upscale Breach Candy area, for Rs 272 crore. In 2016, HUL sold its south Mumbai guest house 'Alhambra’ on Carmichael Road, which had been home to three former chief executives of HUL—Vindi Banga, Doug Baillie and Nitin Paranjpe—for about Rs 170 crore.

Apart from adapting to employees’ preferences, most companies have been deploying this capital stuck in non-core assets so far back into their core business. “Utilisation of shareholders’ equity for non-core real estate assets is seen as a suboptimal use of capital and is not viewed favourably by shareholders and analysts, and private equity entities in case of unlisted companies. In this context, most companies are monetising such assets and even entering into sale and lease back agreements,” said Anckur Srivasttava, chairman of GenReal Property Advisors that has advised multiple listed companies on such transactions.

While many leading organisations have discontinued the practice of company accommodations, some companies continue to offer this option to executives depending on their preferences. “At Nestlé India, providing our employees with competitive yet flexible benefits is a key proposition of remuneration. Given the changing preferences and lifestyle, we offer our employees to choose either company-leased housing or cash in lieu—this helps them to make choices based on personal needs and preferences,” said a Nestlé India spokesperson.

Mostly, employees prefer flexibility and it suits the companies’ plans too. “Almost no company is carrying large real estate on their balance sheet for providing accommodation to employees. This is non-core for them and the companies are rather giving commensurate hike in the package offered to these executives to offset the impact of housing cost. Employees also prefer that flexibility,” said Atul Vohra, managing partner, Transearch India, an executive search consultant working with Indian business houses and MNCs.

However, there are exceptions such as factory and mines at remote locations as there no good housing options for employees and it would be seen as a crucial support needed for retaining talent. Emergence of new options such as service apartments and cost-effective stays in hotels provided by aggregators has also led to companies’ decision to not carry the burden of these assets.

“With increasing property prices in Mumbai and corporates’ view to lighten their real estate portfolio, there has been a continuous selloff of these guest houses during the past few years. Also, due to the presence of good stay options at five-star hotels and other, more cost-effective choices from many aggregators of hotels and serviced apartments, corporates no longer feel the necessity of owning and maintaining such guest houses,” said Anuj Puri, chairman of ANAROCK Property Consultants. In addition to this, the companies are also continuously looking to exit from non-core assets as these long-held properties have been fetching significant returns for the corporates.