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COVID-19 impact: As deals nosedive in student housing hubs, rents crash by over 30%

With most students having gone back to their hometowns, brokers in educational hubs across Kota, Delhi and Pune complain that the last three months have been a complete ‘washout’ with ‘zero deals’ and rents have dipped by over 30%.

Amid the economic uncertainties of COVID-19, real-estate markets around coaching hubs that are heavily dependent on student housing, are in shambles.

“The student housing economy in Kota is dead,” Rahul Sethi of Goodwill Realty told Moneycontrol.

Kota, in Rajasthan, is famous for engineering and medical entrance coaching institutes.

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“Last year, around this time, I had closed 10-20 student rental deals in a month, and received more than 200 enquiries. This year, there are no enquires, and revenues are down to zero,” he adds.

In Delhi’s Laxmi Nagar, a hub of chartered accountancy and banking exams training institutes, brokers narrate similar tales.

“I have the keys of 20 vacant houses with me but no takers. Before COVID-19, rooms would be pre-booked even before the tenant decides to leave,” says Ankur Jain, a broker in the area.

With most students having gone back to their hometowns, brokers in educational hubs across Kota, Delhi and Pune complain that the last three months have been a complete ‘washout’ with ‘zero deals’ and rents have dipped by over 30 percent.

Students are reluctant to return and there are no enrolments as institutes are shut. Most coaching institutions are awaiting government guidelines on resuming classes. While that seems unlikely before the fourth quarter, some centres are holding virtual classrooms to reduce the risks of the contagion.

Before the contagion struck, Sethi of Goodwill Reality was a busy man during the April-June period. That is when the new sessions would start. The transactions that he had closed over the last three months have had to do with regular job-related transfer cases or students wanting to shift from paying guest accommodation to a 1 BHK flat as massive discounts are available.

In Kota, rents of a hostel, paying guest accommodation and a 2 BHK apartment range from Rs 4,000 to Rs 25,000, depending on the facilities and the distance from the coaching institute.

Areas where some of the institutes are located include Rajiv Gandhi Nagar, Ricco Industrial Area and Kunari, and rents range from Rs 10,000 to Rs 17,000. In Jawahar Nagar, they are in Rs 13,000-Rs 21,000 range.

A few kilometres away, in Mahavir Nagar, Indra Vihar and Dadabari, rents are around Rs 12,000, and hostel accommodation without food is available for as little as Rs 4,000.

Rentals have crashed by over 30 percent on account of COVID-19 and vacancies are over 80 percent, brokers in Kota told Moneycontrol.

Sethi points out that ever since cases of student suicides were reported in Kota, demand for 2 BHK units had gone up as most students wanted to reside with their mothers or grandmothers.

As many as 19 students committed suicide in Kota in 2018, with three incidents occurring in five days in December, according to media reports. Academic and parental pressure is said to be the main reason.

Pre-COVID, a 2 BHK unit of 1,000-2,000 sq ft was available on rent for Rs 14,000-20,000 and a fully furnished flat for Rs 25,000. All these units are now going for less than Rs 14,000 but there are no takers, says Sethi.

In Pune too, it’s the same story. Mohit Khatanhar, a visually impaired property dealer, told Moneycontrol that the student rental housing market has taken a beating. Before COVID-19, he would close 4-5 transactions a month, but in the last three months, he has not closed a single one.

The average rent for a 1 BHK to 2 BHK accommodation is in the Rs 25,000- Rs 45,000 range, available in areas such as Karari, Kalyani Nagar and Viman Nagar.

“With some institutes deciding to hold online classes, this quarter has been a complete washout,” says Khatanhar.

Going forward, he expects that only students known to each would share a flat, once institutes reopen. In Delhi’s Mukherjee Nagar, a hub for civil services coaching institutes, 90 percent students have gone back home.

Rents in the area are down by 25-30 percent, Vimaljeet Singh of Vimal Associates, who operates out of Hudson Lane, GTB Nagar, told Moneycontrol.

Until last year, Singh would close 8-10 rental deals a month but this year student housing has taken a plunge. A 1 BHK was available in the Rs 9,000-Rs 12,000 range, pre-COVID. Now, it is available in the Rs 4,000- Rs 8,000 range. “Still there are no takers,” says Singh.

The only activity in the last month was the shifting by some PG students, who had decided to stay back, to 1BHK flats to ensure social distancing. “With discounted prices, some students are shifting to single-room flats,” he says.

A single-room accommodation that was available for Rs 7,000 before the lockdown is now going for Rs 4,000.

Landlords are also open to negotiations, he says. Before the pandemic, Singh would close 25-27 deals a month, of which student housing accounted for at least 15-17. 

Formal student housing market in the doldrums

As the academic curriculum is expected to re-start by Q4 2020, formal student housing operators may have to lose out on 3-4 months’ revenue. Preference for online classes for at least one trimester, in order to reduce the risk of infection, may enhance the loss.

“They are down to zero,” says Sriram Chitturi, founder of Guesture and founding president of the Rental Housing Association of India. However, once classes resume, the focus would be on providing a secure environment to the students.

“Campuses would have to ensure that the risks of contamination are minimum and that would lead to improved demand,” he suggests. Going forward, facility management costs may increase marginally due to increased sanitation and hygiene mandates.

Social distancing may see 15-20 percent capacity reduction. Escalation in student rentals and staff salaries may be deferred, according to a paper released in May on the Impact of COVID-19 on the student housing segment in India by Ernst & Young.

Two months of security deposits have helped housing operators avoid revenue shortfall until June 2020. Institutional operators or players, having management contracts for operating university hostels, are the least affected on the back of secured revenues.

However, in both scenarios, the risk of students demanding refunds may re-orient the current ease, it said. From a cost optimisation perspective, a few operators have been able to negotiate 30-50 percent rental discount for standalone leased buildings, limited to the downcycle period.

Some operators claim to have suspended vendor contracts for a few months. Salary or job cuts and release of contract staff, though not happened yet, are on the radar if the downcycle stretches, it said.

The bargaining power of student operators is stronger when they have taken whole buildings and the landlord has invested in asset refurbishment and modifications.

Landlords realise that terminating the lease agreement will not be beneficial since a new operator will expect lower rentals and the time to get a new operator is also very short if they don’t want to miss the next session, the report said.

Another issue formal student housing players are concerned about is the demand for shared rooms, going forward. With social distancing norms emerging out of COVID-19, will shared student housing set-up get redefined? Will there be no demand for shared accommodation? Will students be willing to pay a premium for individual accommodation?

What is clear, however, is that both occupancy and revenues would take a hit for the next few months on account of social distancing norms and lack of demand due to classes not starting before November, say experts.

Before the pandemic, student housing has been one of the asset classes that has attracted significant investments. In the last three years. about $600 million was committed. Investment in this asset class was driven by market potential -- approximately 40 million students and a demand-supply gap, with only 20 percent students getting a hostel bed in the university, and relative stability of cash flows and higher yields.

Student housing operators and aggregators tapped into this market and invested in setting up larger facilities with many amenities and varying degrees of technology intervention.
First Published on Jul 4, 2020 06:50 pm
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