The nomadic millennial is giving a major face-lift to India’s real estate sector.
Thanks to the emerging concept of co-living, where a living space is shared among a group of people, the very idea of “home” is undergoing a transformation. These are initial days but shared living has a huge latent market. It has found favour among students and migrant working professionals.
The term co-living may sound new but, as a concept, it has been around for ages. From the days of dharmashalas (monastical refuges) to Mumbai’s chawls (affordable housing for lower-income brackets) in the 1960s and 1970s to the concept of paying guests and student housing/hostels, co-living has existed in India in myriad forms. But recently it has emerged as a new business model, trying to give a new dimension to India’s residential real estate market.
Traditionally, India’s rental market has been extremely unorganised and fragmented. It is only in the last two years that tech-driven platforms have started to organise it.
Consequently, venture capital funds and investors are eyeing this space with anticipation. Given the fact that millennials comprise 30% of India’s current population, the idea of co-living spaces are potentially staring at a huge business opportunity.
MagicBricks data suggests that in 2017, the rental real estate market was pegged at 10 million units and valued at $22 billion (Rs1.5 lakh crore). By 2023, this volume is expected to almost double to 18 million to reach a valuation of $41 billion. So, as a business proposition, co-living could prove to be lucrative in terms of scale and profit margins.
However, there are few challenges along the way that need to be solved for the potential to be realised. Three primary hurdles on this front are:
- First, it is about getting the right kind of supply to meet the enormous amount of demand from India’s 400 million millennial population. Our data suggests that most of the demand for co-living is now generated from the markets of Delhi NCR, the Mumbai Metropolitan Region (MMR) and Bengaluru and these cities account for almost 50% of the co-living segment on our platform. Compared to the overall rental market, in the top 10 tier-1 cities the supply for co-living is just 4% of the rental supply. So managing the right kind of supply remains critical.
- The second challenge is about changing the usage pattern in co-living by offering millennials and young working professionals a seamless, tech-driven superior experience. The differentiator for the players in the co-living market would be the experience they are providing, be it in the form of fully-furnished apartments, social events, amenities, frictionless onboarding and exit, etc. MagicBricks data shows that 70-90% of all co-living supply is fully-furnished, as against just 10-30% of the overall residential rental supply. How well are new units able to offer, and sustain, a superior experience would play a major role in drawing millennials to this segment.
- The third and perhaps most important challenge would be for the co-living business to capture a significant economic value to the supply side, while continuing to offer rooms and beds at attractive price points to woo millennials. The average national rental yield in the residential segment is just 2-3% and this is much lower than what is prevalent in advanced countries, and much lower than yields for commercial properties. For this model to be attractive, it will be necessary to eventually demonstrate a model that could earn an effective rental yield of over 8%. There certainly seems to be viable methods to achieve this, and if it succeeds, co-living could emerge as a winning proposition.
Over the last 12 months, there has been a considerable increase in both the supply and demand for co-living on the MagicBricks platform. Co-living supply grew by almost 75% year-on-year in tier-1 cities in 2017 and, in 2018 the supply growth rate jumped to 110%.
Cities like Chennai, Hyderabad, Kolkata, Pune, and Mumbai have witnessed a doubling of supply. In fact, in Chennai, Hyderabad, and Kolkata the supply has grown 200% last year. In cities like Noida, MMR, and Gurugram, both the supply and demand numbers are much higher than the national average share of co-living segment in overall rental property market.
While these are positive signs for the co-living industry, it remains to be seen whether the model would prove its feasibility. Can the co-living platforms deliver a product and experience that would prompt users to move out from where they are living today and shift to these new spaces and in the process make a significant economic value? This sure will be interesting to watch out for.
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