PE players put only USD 60 mn into student housing in the last 2 years; segment could see more interest in next 1-2 yrs
Insufficient developer participation despite the opportunity to diversify residential portfolios
The sector still nascent and fragmented; top 10 student housing players together operate >75,000 beds across cities
Cities with max. student housing demand are Bengaluru, Pune, Mumbai, Gurgaon, Hyderabad & Chennai, smaller towns include Kota, Dehradun, Coimbatore, Lucknow & Jaipur
Fresh and wholesome meals, wi-fi, housekeeping and laundry services, app-enabled living in an air-conditioned environment. Welcome to the world of purpose-built student accommodation (PBSA), or housing specifically built for students. An alternative to ubiquitous hostels and paying guest (PG) accommodation, student housing offers an environment and services that align with the needs of today’s students.
With every passing year, this upcoming housing segment is gaining ground among start-ups who want to expand the number of beds across India. Despite this increased focus, PBSA has still not caught on with real estate developers despite being a lucrative alternate real estate asset class.
India’s lackluster response to student housing stands in sharp contrast to trends in countries like the UK, US, and Australia, where it is an evolved and profitable real estate segment.
High Demand – Meet Low Supply
As per data provided by the Ministry of Human Resources and Development, India currently has over 36 million students pursuing higher education. This population is increasing y-o-y, and more than one-third comprises of migrant students who throng to educational hubs such as Pune, Bangalore, Gurgaon, Mumbai, Noida, Nagpur, and Kota, among others.
Student housing generates a massive demand of more than 10 million beds across the major Indian education-focused cities. Hostels and residential facilities in most educational institutes barely meet 18-20% of the student housing demand. As the sector grows, tremendous opportunities will arise for various models of the student housing business – university tie-ups, independent housing, facilities management, staffing, etc., to flourish.
Start-ups Sense Opportunity
Sensing the potential of the student housing market, many start-ups have entered the fray. Student housing providers such as Oxfordcaps, Tribestays, PALACIO, Stanza Living, Campus Student Communities, Housr, Simplyguest, etc. currently operate in Delhi, Pune, Bengaluru, Noida, Mumbai, Indore, Dehradun, Ahmedabad, and Jaipur. The top 10 players in the organized student housing space collectively operating slightly over 75,000 beds with plans to touch nearly 2 lakh beds by 2020.
With the growing demand for student housing, these players are beginning to fill the void by offering affordable, yet tech-enabled community-based living to students. Moving away from the herd, some niche players like Tribestays are targeting only a limited audience with luxury options to students who can afford high-end, state-of-art amenities.
With more and more tech-savvy players eyeing the more advanced Western models of student housing, there has been fairly rapid product innovation. For instance, in terms of space design, companies are looking to provide rooms that are more thematic, fun and aesthetic. Many of them also provide study halls, activity rooms, and gaming rooms.
While these homes are vastly superior to regular PGs, they definitely come at a cost that ranges anywhere between Rs. 7,000 – 20,000 for single occupancy, depending on the locality and amenities on offer.
While the student housing segment presents immense untapped potential, developers have still not ‘warmed up’ to this exciting new asset class. There has been no major developer participation in recent past except by Bangalore-based DivyaSree developers, who are targeting at least 1 lakh beds over the next three years – of which currently only 4,000 beds are operational.
With no major developer currently into it, Indian student housing is still in its infancy. Developers could reference successful models in the US and the UK markets, where student housing is already established as an investor-friendly asset class. Serving as a benchmark for developing markets like India, UK has developed a range of student housing models that clearly delineate how functions and responsibilities are shared between universities and private developers.
Universities in the UK are thinking more about what students want from their living arrangements and tying up with developers to provide improved student housing. There is considerable stress on developing living spaces that give students a sense of community living.
In the US, higher education institutions including the California State University System, the University of California System and the University of Kentucky have sought public-private partnerships with companies like American Campus to add new on-campus housing and replace outdated properties.
Challenges and Opportunities
Student housing holds a host of opportunities for all stakeholders:
For developers, it provides a fresh avenue of diversifying from the presently tepid Indian residential market
For investors, it is an emerging asset class with high potential for returns and low risk
For educational institutions, it is a decisive value-add and a means of providing accommodation as well as a cohesive and secure environment for students.
However, there are also a few spanners in the wheel. Challenges such as cost of construction and cost of land in bigger cities are real, especially in the light of the ongoing liquidity crisis that continues to hamstring many developers. Private equity investments into student housing were as minimal as USD 60 mn in the last two years. Also, there are no specific tax rebates for student housing ventures that may attract developers to this segment.
This market is still largely unorganized and sees limited participation from stakeholders such as the universities, which remain reluctant to collaborate with student housing operators.
Despite these challenges, the Indian student housing segment continues to grow in strength as it is expected to expand from major cities to smaller educational hubs. The huge demand-supply mismatch is reason enough for developers to warm up to this sunshine sector and earn high rental yields – projected to be anywhere between 14-17%, they are much higher than established asset classes like residential and commercial real estate.