India offers plenty of opportunities in the student housing sector as more millennials flock to cities for education and jobs. While this sector is fairly nascent, a growing number of companies are entering into the fray to capitalize on the first mover advantage.
By Kumar S
An estimated 34 million students are currently enrolled in courses at universities across the country, and this figure is likely to go up to 40 million by 2020, according to Knight Frank’s Global Student Property Report 2019.
The numbers are likely to go up due to the Indian Government’s push to enroll 30% of students between 18 and 23 years for higher education courses within this period.
This is likely to create significant opportunities for student housing service providers.
While the report claims students prefer an on-campus or college arranged accommodation, there is only a 20% supply available, creating plenty of opportunities for private rental and co-living service providers.
The Knight Frank survey also suggests that the current demand for purpose-built student accommodation (PBSA) bed spaces is estimated to be over 8 million across the country.
There is a potential to deliver 6 million PBSA bed spaces on greenfield land in the proximity of universities and colleges while a further 2 million bed spaces could be delivered on brownfield sites says the report.
The opportunity to build eight million bed spaces is worth a staggering USD 50 billion; even if the cost of one bed is conservatively taken at USD 6,250.
Student housing is an emerging asset class in India and a refreshing change for developers, who are witnessing a lackluster market in residential and commercial real estate markets for the past several years, consecutively.
Experts also believe that this asset class also offers good returns on investments at relatively lower risks.
A 2018 Report by global real estate firm Jones Lang LaSalle suggests that the student housing segment has the potential to yield over 12% returns vis-a-vis the core commercial sector in which returns remain range-bound between 7% and 10%.
Further, this sector is expected to grow at 38% compound annual growth rate (CAGR) until 2020, valued at USD 350 million.
Indian Minister of finance Nirmala Sitharaman, while delivering her budget speech has proposed tax incentives in line with the Indian Government’s vision of ‘Housing for All’ by 2022. This could augur well for players who have their eyes on this segment.
Tax incentives along with the proposed changes in the existing tenancy law are also likely to help streamline and boost India’s rental market, which is said to be currently around USD 20 billion as per International Monetary Fund estimates.
According to a report by Livemint, – there are approximately 20 firms, including Oxfordcaps, Tribestays, PLACIO, Stanza Living, Campus Student Communities, Housr, Simplyguest catering to the student housing segment in the organised sector. Out of these, the top 10 players collectively operate slightly above 75,000 beds, claims a recent Hindu Report, which suggests that the numbers could touch 200,000 beds by 2020.
Accommodation facilities provided by companies in the organised sector are much better than the conventional rental and co-living services. The cost may vary depending upon the facilities and locality one wants to stay in. These stay facilities are generally equipped with wifi facility, laundry services, play area etc. There are also service providers of high end and state-of-the art amenities.
Metro cities like Bengaluru, Delhi-NCR (National Capital Region), Bombay, Hyderabad and Chennai remain a prized catch for companies servicing the student housing segment.
Bengaluru, tops the chart with highest concentration of university colleges in India, according to a Moneycontrol report. The on-campus PBSA supply stands at just 10%, the report added, claiming that the current total student population in professional courses is estimated at 660,000.
Meanwhile, cities like Pune, Ahmedabad, Indore, Jaipur and Dehradun are also experiencing an upswing in demand.
This market is still largely unorganised, comprising of rented accommodation and private hostels. There is very little participation from universities and colleges. A college or university is better equipped to understand the requirements of the students and collaboration with private players can go a long way in catering to the needs of the students.
The real estate sector, in general, is not doing too well with surmounting liquidity crunch. Cost of construction and land remain high in cities. Moreover, private equity investments in this space have not been too encouraging in the past two years.
In 2018, this segment saw an investment of around USD100 million – a low by industry standards according to a recent media report. According to some investors, the model tenancy law governing the lesser-lessee relationship remains archaic. While the finance minister Sitharaman recently announced there will soon be a new law to boost the segment, problems are likely to remain till the proposed legislation is passed.
(Ed. Featured image of Student Housing building, The Street by Sanjay Puri Architects Uttar Pradesh, India.)