Millenials are ready to pay a bomb as rent

Within a few weeks of landing in Mumbai, Aisha finds a decent apartment overlooking the city landscape, a dream job, and finally, love of her life. While Wake up Sid beautifully captures the essence of millenial living, the reality is often far-fetched.  

Back in 2012, for Pinjala, conquering her Bombay dreams was nothing like this Ayan Mukherji classic. With a measly pay package, scouting for even a decent accommodation in Mumbai seemed like an impossible task. “A family in Bandra showed me a balcony with a small bed and a desk, and for that, they were charging Rs 10,000,” she said. Now, she shares an one-bhk apartment in Santa Cruz with two her colleagues for Rs 27,000. “Our company pays an additional house rent allowance of Rs 4,000 for staying with co-workers. So basically, we only pay Rs 5,000 from our pocket for a beautiful house in Mumbai,” chuckled Shweta, Pinjala’s roommate.     

In big job markets like Mumbai, Delhi, Bengaluru, Hyderabad, Pune, Noida, Gurgaon, the culture of an sharing apartment is not new. But unlike the western countries, the sector has always been highly unorganised, dominated by brokers and middlemen.

Bridging this gap start-ups like Nestaway, Ziffy House, Stanza Living, Zolostays, Yourspace are providing professional services in the rental space. And not surprisingly, the millenials, who search for convenience at the tip of their fingers, are willing to pay a bomb for ease of life.

Rohan Sharma, Research Head, Cushman and Wakefield India, said, “People in the age bracket of 25 to 35 do not want too many assets on their plates yet.” Many of them are still paying off their education loans and others prefer to invest in liquid assets like mutual funds and stocks rather than buying a house. “They are happy to go wherever work takes them and practically live on their suitcases,” Sharma adds.

The rise and fall of the real estate sector

In India, the main driver for the housing sector growth has been its capital appreciation. “If you compare between rental income and capital appreciation, the yields from the former are as low as one to four per cent. But, until 2013-14, property prices were doubling in one or one-and-a-half-year. Investors would buy one apartment and sell it before the project would be ready and then, put the same money in another project. And that is how they saw the money churning,” Sharma said. As the slowdown hit, investors could not find an exit.

Since then, the developers and investors started looking at properties from a very different perspective. Many of them are building commercial setups with specialised facilities like paying guest accommodations, co-living spaces or service apartments, and bringing in professional operators or firms to run them. “Like in Pune, which is an out and out university town, some people are building 3,000 to 5,000 bed paying guest accommodations. And students are willing to pay up to Rs15,000 for the services,” said Sharma. Returns from such commercial properties are about nine to 12 per cent. Also, there is an income from the day one.

However, there are many genuine buyers, mostly in the mid-segment, who are happy to hold it for a long-term and make a two to four per cent return. And they will think about selling the property only when the market recovers.

Samrat Singh, 43, brought his first property in Pune’s Aundh area back in 2005. Today, this Rs 11 lakh property runs into crore. However, Singh moved to the US in 2010 and is now settled there. “I could not sell the property thinking of the hard times I had while paying the EMIs,” he added. Hence, he rented it out to a few young singles from his office.

Start-up Disruption

At a time when real estate has hit an all-time low, PricewaterhouseCoopers reports that the residential rental market in India is pegged at $20 billion, of which urban spaces account for $13.5 billion.  Cashing on this opportunity, market leader Nestaway has raised $94 million so far, from investors including Tiger Global and Goldman Sachs. Their rivals, Ziffy Homes has raised $20 million and Zolostay are in talks with Korean financial firm Mirae Global Asset Management for raising a funding round. Meanwhile, SoftBank-backed OYO is also keen on entering the space.

“This niche space was never explored in a structured way. The trend will catch up soon,” Sharma concluded.

Types of commercial renting accommodations

Paying Guest accommodations: In cities like Pune, students are willing to pay up to Rs 12,000 to 15,000 for standard services and amenities.

Co-living spaces: Though very popular globally, the concept is still new in India. Targeting the young professional, it is a very scientific method of selection of room partners. They will make you stay with someone who perfectly matches your profile.

Service Apartments: It’s more like opting for a hotel accommodation but for a longer period. You get services like your bed being made and food being served. Obviously, the charges are high because they are offering a value-added service.

BnB setups: In tourist destinations, people are opening up their houses for commercial purposes. However, this concept is yet to catch up in India.