Is co­liv­ing the new rental hous­ing with a pro­gres­sive twist? Is it the right time to sell your realty in­vest­ment?

Th­ese spa­ces of­fer con­ve­nience and a new life­style for young pro­fes­sion­als mov­ing across cities for work

HT Estates - - FRONT PAGE - Anuj Puri let­[email protected]­dus­tan­times.com The au­thor is Chair­man ­ ANAROCK Prop­erty Con­sul­tants Ash­wini Ku­mar Sharma ash­[email protected] Ro­hit Shah, founder and CEO, Get­tingY­ouRich Anil Rego, CEO, Right Hori­zons Varun Gir­i­lal co­founder and ex­ec­u­tive di­rec­tor

Co-work­ing and car-pool­ing have be­come vi­able op­tions for the mil­len­nial work­force, and an ex­cit­ing new trend - co-liv­ing - is also be­gin­ning to make its mark with the bur­geon­ing stu­dent and work­ing pop­u­la­tions across In­dian cities.

While it is largely the ma­jor cities like Bengaluru, Mum­bai, Gur­gaon and Pune that be­gan pro­mot­ing this con­cept, the de­mand for co-liv­ing spa­ces is also grad­u­ally per­co­lat­ing into tier 2 cities like Jaipur and Luc­know where both work­ing mil­len­ni­als and stu­dents are in­creas­ingly opt­ing for co-liv­ing spa­ces.

Co-liv­ing is much more than a mere bed-and-break­fast deal. Th­ese are fully-fur­nished homes where the pri­vacy of ten­ants is re­spected.

Pri­vate bed­rooms with ac­cess to com­mon shared ar­eas like the kitchen and liv­ing room are the norm. Such spa­ces of­fer con­ve­nience and an en­tirely new life­style for young pro­fes­sion­als – most of­ten bach­e­lors and sin­gles - who are not keen to change cities be­cause of their work.

Their main con­cern is find­ing the right ac­com­mo­da­tion. For them, co-liv­ing is an ideal so­lu­tion, and con­ven­tional pay­ing guest fa­cil­i­ties and hos­tels are grad­u­ally giv­ing way to this more so­phis­ti­cated way of liv­ing in a less in­hib­ited and re­stric­tive en­vi­ron­ment with am­ple op­por­tu­ni­ties to min­gle.

Cur­rent trends in­di­cate that this newac­com­mo­da­tion­is­more pop­u­lar with the young and un­mar­ried mil­len­ni­als, aged be­tween 20-30 years.

Pro­fes­sion­als who don’t live with their fam­i­lies in the city of em­ploy­ment are also in­creas­ingly con­sid­er­ing this op­tion. It can safely be stated that the aver­sion to iso­la­tion and lone­li­ness are driv­ing the de­mand for co-liv­ing.

MAR­KET SIZE

Co-liv­ing is still a niche seg­ment in In­dian rental hous­ing, and its ac­tual mar­ket size has not been well-doc­u­mentedasyet. Thebest we can do is take some cues from the over­all rental mar­ket read­ings.

To­day, the over­all mar­ket share of rental hous­ing in In­dia can­beany­where­be­tween35-45% of the to­tal res­i­den­tial mar­ket. This share is in­creas­ing steadily, par­tic­u­larly in ur­ban cen­tres that com­prise nearly 70% of the to­tal rental mar­ket.

The Govern­ment Cen­sus main­tains that nearly 28% of ur­ban­house­holds lived in rented houses in 2011, but this num­ber is def­i­nitely much higher now.

Thechal­lenge with ar­riv­ing at ex­act fig­ures is that the rental hous­ing mar­ket is al­most ex­clu­sively a pri­vate mar­ket of sev­eral small-scale providers which may not have been recorded.

As per IMF’s last es­ti­mate two years ago, In­dia’s res­i­den­tial rental mar­ket was es­ti­mated to be a more than US $20 bil­lion mar­ket com­pris­ing of $13.5 bil­lion in ur­ban ar­eas, $0.8 bil­lion in ru­ral ar­eas, and $5.7 bil­lion of va­cant prop­er­ties held by non­res­i­dent In­di­ans liv­ing abroad.

A NEW PROP­ERTY IN­VEST­MENT NICHE?

Go­ing by the re­cent trends, co- liv­ing may of­fer a higher rental yield of as much as 8-11%, as com­pared to the cur­rent av­er­age yield of 1-3% in res­i­den­tial prop­er­ties.

This fact is def­i­nitely paving the way for a new as­set class in real es­tate in­vest­ing. Interestingly, co-liv­ing spa­ces could also bring down­the­con­sumer’sav­er­age cost of liv­ing by as much as 10-15% with op­ti­mal real es­tate uti­liza­tion and economies of scale.

While in­for­mal co-liv­ing has al­ways ex­isted, start-ups such as Oyo Liv­ing, Nest­away, CoHo Liv­ing , etc. bring a more pro­fes­sional and or­ga­nized way of cater­ing to the ac­com­mo­da­tion needs of new-age mil­len­ni­als. In fact, a slew of start-ups is now bet­ting big on­this newway of liv­ing, heav­ily backed by in­vestors such as Gold­man Sachs, Se­quoia Cap­i­tal, etc.

CHAL­LENGES

Not ev­ery­one has been able to make a go of co-liv­ing plays, and a hand­ful of out­fits have al­ready had to shut op­er­a­tions. Like most ex­cit­ing new con­cepts, co-liv­ing is not with­out its own chal­lenges.

Chief among th­ese is the high rental val­ues of co-liv­ing spa­ces in com­par­i­son to the tra­di­tional for­mats of PGs and hos­tels. The rentals in­volved are sim­ply not af­ford­able for large chunks of mi­grat­ing pop­u­la­tion, or sus- tain­able in the long run for those who are even­tu­ally look­ing to set­tle down with their fam­i­lies.

Co- liv­ing is a good ini­tial op­tion for those mi­grat­ing to a new city, but once such in­di­vid­u­als set­tle down and start a fam­ily in the city, they pre­fer the more con­ven­tional route of rent­ing or even buy­ing an apart­ment.

With a still-lim­ited spread of tak­ers in In­dia and given that the over­all res­i­den­tial seg­ment is still see­ing low in­ter­est by in­vestors, it will take a lit­tle while for co-liv­ing spa­ces to gain the kind of mo­men­tum they en­joy in West­ern coun­tries. Still, co-liv­ing is doubtlessly mak­ing an im­pact here and it is only a mat­ter of time before In­dia’s as­pi­ra­tional young work­force and more­fo­cused play­ers in this field give it the boost it re­quires to be­come a real mar­ket force. Re­turns from res­i­den­tial sec­tor in the last five years have largely re­mained neg­li­gi­ble or neg­a­tive. We ask ex­perts what strat­egy— sell or hold— the in­vestors should adopt in such a sit­u­a­tion.

REALTY PRICES UN­LIKELY TO GO UP

If the as­set al­lo­ca­tion sug­gests that such re­bal­anc­ing is re­quired in the port­fo­lio, then it may not be a good idea to wait as it is dif­fi­cult to pre­dict the re­turns in the short term.

Con­sid­er­ing the in­ven­tory in met­ros, con­tin­u­ous ad­di­tions through new projects and stricter reg­u­la­tions, it does ap­pear that res­i­den­tial prop­erty prices may not ap­pre­ci­ate much, in gen­eral.

In­vestors can­look at the likely pay off from an al­ter­nate in­vest­ment. Based on the size of the un­der­ly­ing as­set, in­vestors can also take help of real es­tate pro­fes­sion­als and get a per­spec­tive.

Whether one in­vests in a fi­nan­cial as­set like mu­tual funds or a phys­i­cal as­set like real es­tate, the in­vest­ment hori­zon should be very long-term, i.e. at least 10-15 years. Of­ten in­vestors ex­pect ab­nor­mal re­turns in a short pe­riod based on aber­ra­tions in the re­cent past.

In­vestors tend to hold on to loss-mak­ing in­vest­ments due to men­tal ac­count­ing as the base price is al­ready an­chored in their mind. All as­set classes have their own cy­cles of ups and downs. To keep chas­ing for high­est earn­ing as­set class would­cer­tainly be a mis­take. Such chas­ing only means higher churn, trans­ac­tion costs, and taxes. No one can pre­dict ac­cu­rately and con­sis­tently.

DON’T HANG AROUND FOR UNCER­TAIN GAINS

While the In­dian real es­tate is im­prov­ing trans­parency and ac­count­abil­ity after im­ple­men­ta­tion of reg­u­la­tory poli­cies but over­all as anas­set class, realty in the last 4-5 years has given sub­op­ti­mal re­turns. Long gone are those days where you could flip prop­erty ev­ery once in a while and make money. This is a longterm mar­ket and to gen­er­ate av­er­age re­turns one has to build the av­er­age by stay­ing put.

There is no point in hang­ing around for uncer­tain fu­ture gains if your cur­rent fi­nan­cial re­turn from the prop­erty matches your goals. Macroe­co­nom­i­cally speak­ing, In­dia is do­ing bet­ter than it was do­ing ear­lier.

The macro ben­e­fit should re­flect on­the­p­rop­erty land­scape once the dust set­tles. New con­sumers have out­num­bered the pre­vi­ously in­vestor-driven real es­tate mar­ket, but they de­mand com­pact and af­ford­able con­fig­u­ra­tions. So, the de­mand drivers ex­ist. In case your port­fo­lio re­ally needs an align­ment, an exit from your real es­tate as­set ex­po­sure is rec­om­mended ir­re­spec­tive of cur­rent mar­ket val­u­a­tions. A port­fo­lio re­bal­anc­ing or re-align­ment would­mean­that the as­set mix needs to be op­ti­mized.

AL­LO­CATE MONEY IN BET­TER ASSETS

From an in­vest­ing strat­egy stand­point, it makes sense to look for an exit at the ear­li­est at one’s cost price and even up to 10%-15% be­low one’s cost price. ₹100 com­ing­downto₹90 andthen hav­ing a chance to grow at 10-12% re­turn will be a bet­ter place to be in than a high prob­a­bil­ity of flat or 4-6% gain from real es­tate over a 5-year pe­riod. Stay­ing in­vested to a much higher real es­tate exit price will have a high op­por­tu­nity cost and will put one at risk of suf­fer­ing a long term time correction. Most of our clients who ex­ited real es­tate 4-5 years back and have re­al­lo­cated to fi­nan­cial assets have seen ben­e­fits in the form of bet­ter post-tax re­turns, liq­uid­ity and flex­i­bil­ity. The at­tack on black money, RERA Act, huge un­sold real es­tate in­ven­tory and re­moval of tax ben­e­fits for sec­ond home make the case of exit from in­vest­ment-ori­ented real es­tate stronger es­pe­cially where one has more than 60% al­lo­ca­tion to real es­tate in one’s net­worth.

Pro­vided one has com­pleted more than two years of hold­ing real es­tate, ex­it­ing now will also en­able a per­son to cre­ate a tax shel­ter in terms of show­ing in­dexed long-term loss whenone fac­tors in in­dex­a­tion while fil­ing IT re­turns.

HOLD ON TO YOUR REALTY IN­VEST­MENT

As of now, the fact re­mains that devel­op­ers are find­ing it dif­fi­cult to sell their in­ven­tory. Sit­u­a­tion is forc­ing devel­op­ers to re­con­sider their in­ven­tory pric­ing and re­sort to low­er­ing of sell­ing rate to main­tain the pos­i­tive cash flow po­si­tion. The RERA dead­lines for devel­op­ers is also putting them un­der pres­sure to sell their stock to main­tain the time­lines.

Even though new launches have been lim­ited in the pre­ced­ing 12 months, ex­cess sup­ply per­sists. There is good prob­a­bil­ity that this in-flight in­ven­tory may get mod­er­ately con­sumed by 2018-19.

In con­trast, com­mer­cial real es­tate seg­ment has seen a good de­mand uptick led by the healthy growth in the leas­ing ac­tiv­ity. Com­mer­cial real es­tate tra­di­tion­ally leads res­i­den­tial real es­tate and the ro­bust in­ter­est wit­nessed in com­mer­cial seg­ment is likely to have a lead­ing ef­fect on res­i­den­tial seg­ment as well. One will how­ever have to wait and watch.

In such times of low sales in the res­i­den­tial seg­ment, a sheer in­ven­tory over­hang in most of the mi­cro mar­kets and tons of dis­counts and of­fers by devel­op­ers, it is pru­dent for a res­i­den­tial as­set owner to hold on to the in­vest­ment till the cy­cle turns and there is an equi­lib­rium be­tween the sup­ply and­de­mand. Hold on to the torch till you see light at the end of the tun­nel.

FILE/HT

Co­liv­ing is still a niche seg­ment in the In­dian rental hous­ing mar­ket with its ac­tual size also not hav­ing been de­ter­mined

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