The co-living sector is expected to become an exciting asset class for real estate investors as the demand for beds, particularly with the tech-enabled organised players, outstrips supply. A new report by PropTiger.com, a real estate advisory firm, says that co-living fetches much better yields compared to traditional ways of renting property.
"Data available with PropTiger DataLabs show a property for students in Sector 125, Noida, for example, is expected to give approximately 8-9 per cent rental yield whereas, housing for professionals is expected to provide nearly 5-7 per cent rental yield on an average as compared to meagre 2-3 per cent traditionally," the report states. "As an investor, co-living sector serves as a new asset class for the investor to earn better yields," it adds. On an average, across India's top cities, rental yields of co-living spaces can go as high as 8-11 per cent, compared to the average yield of 1-3 per cent of residential properties.
Not only this, the sector can potentially prove to be the light at the end of a long dark tunnel for many developers stuck with residential inventory they cannot sell. Developers can repurpose their inventory towards co-living, suggested Dhruv Agarwala, the Co-founder of Elara Technologies. The company owns brands such as PropTiger, Housing.com, and Makaan.com. He estimated that between $350 million and $400 million has been invested in the sector till date.
Here are some interesting highlights from the report:
There were about 37.4 million students in India pursuing higher education courses in 2018-19 - 15 million of them are migrants. The overall occupancy recorded in hostels within college campuses across India was only 6.5 million in 2019. Therefore, there is a huge demand-supply mismatch which has traditionally been met by the unorganised PG accommodation sector. "In recent years, over two dozen organised players have entered this segment to bridge this gap," the report stated. The bigger companies in the co-living segment today include OYO Life, Zolo Stays, NestAway, CoHo, CoLive, Guesture, and Stanza Living, among others. The organised players mostly offer better facilities and security, besides a community and social layer.
By the end of calendar year 2019, organised companies contributed over two lakhs beds. Each bed earned Rs 12,000 a month on average. "Hence, the organised players in this segment are currently generating a combined Rs 2,880 crore ($407 million)," the report stated and predicted that the industry can grow to a Rs 2 trillion market size in the top nine cities by 2023.
"As the home ownership preferences have changed since the last decade, supply side also needs to change. Migrant millennials will drive the rental housing segment of residential real estate sector, where co-living is one of the strongest sub-segment," the report stated. The Model Tenancy Act, it added would also impact on the co-living sector, once implemented.