Sun Rises On Branded Co-Living
Last month, Rohit’s dream of staying on campus suffered a setback. He had scored in the high 90s and managed to get admission in Delhi University’s Hans Raj College on North Campus, but failed to make it to the shortlist for limited hostel accommodation. Hailing from Shahjahanpur in Uttar Pradesh, Rohit (name changed) was left with no option but to scout for a suitable place to stay. As he went from one paying guest accommodation to another, he stumbled upon an affordable student PG run by OxfordCaps near his college.
What Rohit saw left him pleasantly surprised. Tastefully designed corridors and interiors; gleaming floors and walls; rooms with bed, study table and cupboard, attached bathroom, single or shared occupancy, cooler and AC option; gym, play zone, high speed broadband, professional laundry; four meals. All these for a monthly fee he could easily afford. Rohit signed up immediately.
Welcome to the world of branded student housing that has been conceived keeping in mind the needs of the millennials. These PGs are a world apart from the age-old dilapidated hostels and the ubiquitous barsatis – usually one large room with a bathroom on the rooftop – that landlords let out. They are reasonably priced to suit the pockets of both students and professionals and charge a monthly fee of Rs 5,000 to Rs 25,000 depending on the city and location, single or shared occupancy. Some of these PGs even offer a free subscription of Netflix, Amazon and other OTT platforms, besides a 24-hour canteen/café. Inmates are not allowed to cook, though.
Today, the branded student-housing and co-living space has grown to more than 2 lakh beds in more than a dozen cities, thanks to startups like Stanza Living, OYO Life, CoHo, NestAway, OxfordCaps, Your-Space, and Zolo Stays. They have till date raised around $200 million in investments between them. Their modus operandi has been to take over unfinished/semi-finished building, bungalow, or a minimum cluster of flats on long-term lease of 9-15 years and refurbish them. This has come as a boon for developers with unsold inventory.
Experts are betting on the branded co-living/student housing space, also referred to as the aggregated housing model, becoming a trillion-dollar opportunity over the next two years. They argue that the ‘Big Boys’ of the realty business are all making inroads in this segment backed by deep pocket investors. Private Equity (PE) players like Sequoia Capital, Tiger Global, Accel, JM Financial, Wargburg Pincus and several others are already investors in this new business.
Vijay Rajagopalan, Head (Alternatives Business), JLL India says the rising demand for shared housing will propel the co-living market and offer a business opportunity of Rs 1 trillion by 2023 along with the capacity of 5.7 million beds in the organized (branded co-living/student housing) market. According to him, the segment will derive traction from the entry of new players that are bigger, better and well-funded.
Buzzing Business
Housr Technology, a Gurugram-headquartered firm that launched branded co-living with much fanfare in April, is backed by the likes of Abhishek Lodha (MD and CEO of Lodha Developers) and Pirojsha Godrej (Godrej Properties’ executive chairman). The two are said to have committed personal investment in Housr. Housr plans to infuse over Rs 350 crore by the end of next year and add at least 50,000 beds. In the next 36-months, it wants to own and operate more than 200,000 beds. That will make Housr the largest operator (virtually doubling the current market offering in record time).
Stanza Living, operated by DTwelve Spaces, is today the biggest player offering more than 22,000 beds across nine cities and counting. It has received $17 million in funding so far, and a leading PE fund has committed another $50 million to it. “Our target is to cross 100,000 beds by 2021. I want to be in Jaipur, Ahmedabad, Nagpur, Kolhapur, Trichi, Madurai. I want to be in all these cities at this point of time as they are all very attractive target segments,” says Anindya Dutta, Co-founder, Stanza Living.
Of the current crop of startups in the space CoHo is the most experienced, having started operations in late 2015. Uday Lakkar, Founder and CEO, CoHo.in informs that currently they have more than 3,500 beds across Delhi NCR and Bengaluru. CoHo stands out from the rest in an important way. “CoHo community engagements are something which every resident looks forward to during his stay at CoHo. It organises various events, sessions and meet-ups for the residents, so that there’s no dull moment after work, and on holidays or weekends,” says Lakkar.
Referring to the typical challenges that a player like CoHo faces, Lakkar says, “Spreading awareness of the concept and trust building are two of the biggest challenge for us. This industry suffers from trust deficit due to unprofessional approach from brokers and service providers.” He dismisses competition on the ground from any existing or new entrant saying, “Our biggest competition still remains the unorganised market which has 95 per cent of the market share.”
Enter Housr
In view of Housr’s grand plans, announced in April, we decided to catch up with Deepak Anand, Founder & CEO, Housr Technologies. Anand is an INSEAD alumnus and has a diverse background in private equity, banking, and distribution with leadership roles at HSBC, HDFC and HT Media. His business-like approach was manifest when landed on time for our 10:30 am meeting at a plush hotel in Gurugram. Without wasting any time, he straightway got down to the subject — the current market scenario and why Housr means what it says.
Anand stressed that the paying guest (PG) model had been passed off for co-living industry for too long and that the two were not the same thing. Explaining the idea of co-living, he said: “Housr’s strongest differentiator is its ‘mega community model’. Each property will have more than 500 residents living together. This allows for strong economies of scale and unparalleled service and community offerings that no other player in India is able to provide as of today.”
He went on say that “Housr will become the largest co-living player in India in the next 18 months, with plans to launch more than 20 properties across 8-10 key cities”.
Housr has taken on long-term lease two residential towers from realty firm Tulip Infratech to launch its first co-living project in Gurugram. By early August, one of the towers would be operational with an early-bird offer ranging from Rs 12,999 to Rs 22,000 per bed per month including breakfast and access to various common amenities.
So far, Housr has managed to offer more than 10,000 beds across Delhi, Gurgaon, Noida, Greater Noida, Kota, and Mumbai. Anand says his company is also working with developers for ‘built-to-suit’ i.e. build a tower exclusively for co-living. The Housr app helps locate the empty parking spot in your building, tells you what’s on the breakfast menu, announces the day’s event, let’s you navigate the traffic at the pool and the gym, shows you partnership discounts available and also introduces you to the other members of the Housr community. Most of these experiences are already being offered in varying degrees by the likes of Stanza, CoHo, and others.
Market Size & Business Model
“Co-living space is a recent and an emerging trend in Indian real estate industry. With the potential to grow into a billion-dollar market, there is great scope for developers to tap this market. In the co-living market, student housing is currently gaining attention of the real estate industry,” says Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle-East & Africa, CBRE.
According to Magazine, the last two years have witnessed a growth of 35–38 per cent in the overall supply of beds at a pan India level. “Given the interest exhibited by various stakeholders viz. operators, developers and funds, this growth is expected to sustain in the medium term (4–5 years). In the long term, a stable growth of 8–10 per cent shall be achieved basis the acceptance/evolution of the student housing and co-living market,” he says.
Rajagopalan of JLL attributes the sudden spurt in the shared rental market to “the demand from millennials for shared renting, affordability, rapid urbanization of cities and the presence of a large number of young and middle-income people.
The other things favouring an uptick in aggregated housing are relatively lower capital requirement, quick scaling up of the business and subdued residential sales along with large unsold inventories. “Co-living or student housing allows for highly efficient space utilisation on a per-bed basis. It also allows for development of spaces that can curate user experience through activity as well as provide underlying asset value driven exit routes to investors. This differentiation also shows where venture capital as well as PE investor would gravitate to at a very broad level,” says Rajagopalan.
It’s not hard to see why investors are finding it attractive to commit large funds to the sector. “Co-living is already showing early signs of being a sunrise industry because of the high growth rates, numerous startups already coming into the sector and the abundance of VC funding,” says Rajagopalan of JLL. The other set of investors looking at this asset class are PE and developers.
Magazine from CBRE says keeping the demand drivers in perspective, there is a huge potential for this alternate asset class going forward. “In 2018. Lemon Tree Hotel’s forged a joint venture with global private equity firm Warburg Pincus LLC to form a platform that would jointly invest nearly Rs 3,000 crore to develop student housing and other co-living space in India.”
Buzzing Student Housing Market
Stanza Living, one of the biggest players in student housing, has so far raised $17 million from investors like Accel, Sequoia, Alteria, Matrix, etc. Co-founder Anindya Dutta says his experience with accommodation issues while abroad prompted him to launch the startup. Stanza Living follows a strong cluster-based approach, which means, it is always trying to create micro market/cluster in whichever city it is in. “More than getting into cities it is about getting into a cluster. So, for example, Koramangla in Bangalore is a cluster by itself, Yelahanka in Bangalore is a cluster by itself,” says Dutta.
Further, according to Dutta, “a cluster has to have a minimum of 5-10 thousand beds kind of potential for us to get into that market. So we’re not going to just pick our building in Gurgaon because it sounds cool. We can afford to get buildings wrong but we can’t afford to get markets wrong.”
Once a cluster is identified, Stanza then centralises all fixed costs. “A lot of cost savings are driven through centralization of fixed costs,” says Dutta, adding, “I don’t think there is anybody in this market today who has a better cost structure than we do. We’re at least 35-40 per cent cheaper in terms of cost structures than our nearest competitor in the organised space.”
New Entrants
Among the new entrants are Pune’s Tribe Stays, which has been modelled on the lines of international student hostel chains present in the UK. Located near the Pune International Airport, TribeStays is today a fully operational building. Talking to BW Businessworld, Yogesh Mehra, Founder & CEO said although Tribe Stay offered fewer beds compared to the Big Boys in the business, “my business is like a single screen theatre but loaded with all the amenities of a multiplex. Those who will be our patron will continue with us in every city.”
A veteran of the realty business in Pune, Mehra has proven his credentials as a builder in Pune and is a well-known name in his city boasting of over two decades of realty experience. “We have three operational centres right now — Bombay, Pune and Bengaluru — offering nearly more than 500 beds. Every quarter we are adding properties so we will cross the 1000-bed mark sooner than later,” says Mehra, a veteran of the realty business in Pune. He says Tribe plans to raise Rs 50-80 crore by next year for further expansion.
TribeStay offers air-conditioned rooms (single or shared) with all amenities to both male and female students, although on separate floors. The common areas including Cafe Mamaliga, the gym, entertainment zones/playing areas and a spacious porch are all under CCTV surveillance. For twin rooms, the monthly rental is around Rs 24,000. Single rooms cost Rs 10,000 more. There are also luxury rooms. But aren’t the price points expensive in Pune? “Yes they are. But parents are happy to pay,” says Mehra.
Mehra says GST adds to the overall cost. “Several operators are not charging GST but I obey every rule. We charge 18 per cent GST. Why bypass a system? Parents are happy paying it,” he says. Tribe founders, which include Mehra’s sons, say they will start making money in the next two years. On a per-bed basis, it costs Tribe owners Rs 1-2 lakh. He explains: “The rugs are from Panipat where I spent some time selecting the perfect one for every room. In toilets too, everything has been carefully selected keeping the students’ habits in mind. The seat of western commode won’t fall down or the cupboard doors will shut automatically. These are small things but make a big difference to my patrons.”
Challenges
Since branded student housing is a recent concept, there are no regulations at the state level. Finance Minister Nirmala Sitharaman made a reference to a policy framework for rental housing in her budget speech in July. Says Magazine of CBRE: “The segment needs to be recognised as a separate asset class at a national and state level to give it the required boost from the stakeholders’ standpoint i.e. developers, investors and operators.”
Application of GST on the rents is still an ambiguous area. So while operators like TribeStays apply GST on rent, others like CoHo do not.
A larger question that begs answer is: Will this model help solve the scarcity of liveable housing units in major cities? While Rajagopalan of JLL is of the view that shared renting “can definitely aid in plugging the housing shortage in the country” provided it gets stronger support in terms of regulation and rules, Magazine of CBRE, cautions against rushing to conclusions. “It is currently too soon to assess the situation and once the segment makes a headway, will we be able to better judge the situation,” he says.
Whatever may be the case, branded co-living/student housing is currently the most happening trend in an otherwise sluggish housing market. For now, it is proving to be a boon for lakhs of students who flock to distant cities for higher education, or for young working professionals whose jobs takes them to metros and newer cities.
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