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Student Housing : An Opportunity for Real Estate Developers in India

Posted by Alok Upadhayay on April 13, 2018
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Real estate developers in India are sensing an opportunity with student housing in Indian Real Estate Market, as there is a dire need of housing for growing number of students in metro cities and cities with large educational institutions. Student housing is a relatively new concept in India. It has been popularized in the West and is slowly gaining traction in cities like Dehradun, Pune, Chennai, Chandigarh, Manipal, Ahmedabad, Bengaluru, Baroda, and Sonepat are few of the emerging education hubs in India.

What is student housing?

Student Housing is a form of low cost, affordable housing schemes built private real estate developer or builders for students near the educational institutions, university or college campuses.

Student housing has been increasingly in demand with investors around the globe. Alos, low-interest rates and returns have pushed investors to hunt for higher returns in less-trodden areas of the property market, such as student housing, care homes, and data centers.

Growing student population in India have added to the attraction of real estate developers and investors towards student housing in Indian Real Estate Market. India has been witnessing a steady rise in the number of higher-education students to the current 34 million. Of these 34 million students, over 70 percent are in the biggest 10 states of India.

Cities like Dehradun, one of the many emerging education hubs in India; with its 14 national-level universities and 12,000 enrolled students, is a wonderful example of how wide the trend is spreading. There is good growth potential for student housing in such education hubs in India.

The education industry is growing rapidly in India and is churning out a high number of professionals from every industry every year. The number of students enrolling in colleges in cities other than their hometowns is also rapidly increasing. Especially in the education cities like Chandigarh, Ahmedabad, Pune, Bengaluru, Mumbai, Chennai and Delhi.

This provides a huge opportunity for builders to build lost cost structures near large campuses to be able to provide accommodation for the students. It is an even better opportunity for investors to invest in such properties because educational institutions rarely move locations and the constant stream of rent revenue is always a bonus in the selling prospect of such flats.

Real estate developers are looking at doing bigger projects across these education cities, considering investment funds are looking at larger projects.

National enrollment figures for college and university education are expected to increase in2018 compared to the current enrollment landscape, with the potential to add 100,000 or more students during that time frame. In addition to increasing enrollment, funding shortfalls across several states act as an additional driver of student housing solutions from the private sector.

With so many students, supply has a ways to go to match demand. There is unavoidably a huge gap between the supply and demand of good student housing projects which the real estate sector can take advantage of, especially in the big cities.

The demand is there, as there is nothing specific for the first-year college students but just a limited number of hotel beds, BnBs or PGs. Students away from home look for quality spaces and student housing can be an answer to this problem.

In India, there have been many cases of bad experiences of students with landlords or private home-owners. Yet, the private home-owners dominate the student-housing market in absence of any other suitable option. The majority of students either rent apartments in groups or prefer to live as paying guests outside the university campus. And at these places, they end of paying heavy rents for peanuts of amenities.

These accommodations are often nestled in purely residential areas, which most of the times may not provide an ideal ecosystem for a student. But given the dearth of quality private hostels and the lack of choice, it has become a norm.

While there is demand, the market is yet to see the required supply, in part because of the country’s unorganized rental market and a limited supply of quality accommodation.

Looking at the math, it’s clear why investors are enthusiastic about student housing. As Millennials become the country’s largest living generation.

It will take three to four years for quality supply to come up across these cities as for developers, price points for this nascent market are yet to be established in these cities.

Still, investor interest is growing for the student housing that does exist as the hunt for yield continues. According to a report by JLL, 26.6 million students migrate to different cities across India to pursue their higher education. Of these 26.6 million students their respective university campuses can provide accommodation to only 18-20% of those students, leaving the rest to fend for themselves. The yield rate for student housing is between 15 percent to 18 percent, significantly higher than office and retail, as pointed in a recent report by JLL India.

Factors Contributing to the Growth of Student Housing in India:

In addition to the limited accommodation in the universities and colleges hostels, there are few more factors playing a vital role in increasing demand for student housing. Here they are: 

Limited Land at College or University Campus:

Due to limited land availability, the college or university hostels or boarding homes lack to have enough space to meet the accommodation needs of the student population, enrolling every year. In lieu of such a scenario it makes perfect sense to invest in a student housing scheme in Pune.

Low-Risk Profile:

Investment in Student Housing low-risk profile, considering, students will always be there. For the buyers of such accommodations, there is a fixed income stream and a guarantee in the form of the students’ parents. In such case, investment in the student housing scheme feels like a no-brainer.

Expectations of students:

New age students, no longer prefer to live the strict-disciplined life which is forced on them in the boarding or hostels. Students now like to live more independently, have the freedom to explore new things, develop new hobbies and have a culture of mixing pleasure with studying. Renting a house is a good option but this turns out to be just marginally more expensive for students than living in a hostel and doesn’t come attached with all the rules and regulations of the universities.

Welcoming opportunity for real estate developers and investors:

The opportunity of ‘Need of Student Housing’ has come at a great time for real estate developers and investors in Indian Real Estate Market. Since the last couple of years, Indian residential real estate market has been going through a slowdown and real estate developers are looking for options to sell out existing inventories.

This can be a great opportunity for the developers to convert their existing under-construction residential projects into student housing projects. The target customers for such accommodations can be the investors who want to earn rental yields from their property investment in housing projects.

Regular and High-income Growth:

Well, the colleges and universities in town are not going to just move their well-established campuses overnight.
Thus, with student housing, the investors can have a clear knowledge of their income streams for next few years and these investors/home-buyers will know exactly what to expect from their investment. It has been observed that the education industry stays strong even when the rest of the market takes a dip, and with that, the steady rental income will keep coming to the investors.

Strong Demand Expectations:

Students do very well understand the importance of a higher education. And, with leading astronomical enrollment figures in colleges and universities in India, there is a big market ahead. The maths here is simple, more students mean more opportunities for real estate developers to create a selling point for investors in order to clear their unsold inventory.

Inferior Quality Accommodation in Educational Institutes:

There are boarding facilities or hostels in the colleges and universities but most of them are not well maintained and the remaining are really swanky. In both the cases, students don’t want to live there and hence look for accommodation outside the campus. These cases are like a shining opportunity for the real estate developers.

 

Consistent demand, stable net operating income and a favorable supply environment are working like a magnet to attract investors to student housing. College-age population growth and subsequent enrollments are expected to remain positive in coming years and balanced with larger labor market trends.

However, there is a reason to be cautious.

With investor increasing interest in student housing, the pricing tends to be competitive. Also, there is a question about the affordability for students too. The cost of education and student debt have the potential to mute demand in some markets.

Despite this, student housing is an opportunity for real estate developers in India, which if not exploited can yield great long-term benefits

What do you think about the student housing revolution? Let us know in the comments below.

Post by
Alok Upadhayay 

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