Large real estate firms are warming up to the idea of building rental housing as an extension of their existing residential business, as shared accommodation and co-living platforms led by startups such as Nestaway and OYO Living rapidly capture market share.
Firms such as Shapoorji Pallonji Real Estate and Brigade Group are planning to build student housing projects, while others like Mahindra Lifespaces, Godrej Properties, and Lodha Group are testing waters by investing in co-living startups.
"Many developers are evaluating and studying the rental housing market and some of them are already investing in these co-living startups passively to figure out the market and then finally take the plunge. The idea is to enter the co-living market place without actively getting involved in it," said Tejas Patil, co-head, (real estate), Sanctum Wealth Advisors.
SD Corp., a joint venture between Shapoorji Pallonji and Dilip Thacker group, plans to build a dedicated residential tower for student housing as part of a 55 acre integrated township called Sarova in Mumbai’s suburb of Kandivali East.
"We are finalizing the details. We are talking to multiple operators and doing the primary research work on its demand," said Rajeeb Dash, vice-president, sales and marketing, SD Corp.
Bengaluru-based real estate developer Brigade Group is also evaluating opportunities to set up a rental housing portfolio, said Pavitra Shankar, executive director, Brigade Enterprises Ltd.
"We are looking at it (rental housing) and how to make it feasible. Potentially, rentals can only happen if we are offering some amount of services. However, most importantly, it has to make economic sense to us," Shankar said.
Rental housing, a highly fragmented segment, has been dominated by tier II builders and personal home owners who rent out their spaces.
Promoting rental housing could help end the logjam in India’s housing market where there is an acute supply shortage even as the number of vacant residential units continue to rise mainly because of diminishing affordability, according to real estate experts.
Vacant homes stood at 11.1 million units, according to the 2011 census, a 71 percent increase from 2001. There is a huge demand for homes on rent in cities such as Mumbai and Bengaluru, as well as in the National Capital Region.
However, traditional developers have stayed away from rental housing given the low rental yields and lack of clarity on rules and regulations.
At present, investors and home owners earn rental yield of around 2-3.5 percent, a figure that many developers find not feasible for stepping into the rental housing market.
However, in case of modern co-living or shared accommodation setups, yields can double or even increase to 2.5-3 times, according to a report by JLL India, a property advisory firm.
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