How a Bengaluru-based start-up is making ‘rent as a service’ a popular concept

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We have heard of software as a service (SaaS). Now we have rent as a service. A brainchild of two techies from Bengaluru, Vijeth Reddy and Sangeetha Holiyachi, Kots targets consumers in the 30-year age group instead of the normal 35-40-year-olds, and the model is for institutional rent rather than for sale. Historically, one-room or one-bedroom units for rent have never been serviced enough in the urban Indian market because of poor economic returns.

Reddy and Holyachi addressed rental housing from the demand perspective. Demand was concentrated around IT hubs in East Bangalore. The pandemic boosted their business 2x. Houses in their project are loaded with services to make them comfortable and aspirational, it needs to have all the frills and fancies that a highly mobile, expensive cellphone-toting, consumerist urbanite is looking for. Post the pandemic, new categories of studio and small 2-BHK apartments have been added to their kitty as well.

Incubated as a start-up, Kots started in 2019 as a differentiated co-living operator. They found that if the units were within a 0-5 km radius of IT hubs, they would draw users who could pay for the houses and facilities. The units were fully furnished and loaded with lifestyle facilities such as white goods, safety and security, call centre-managed access to water and food, and all regular payments could be made on a single app. Laundry facilities were an important add-on. Gyms and clubhouses were good to have. Since the units were built-to-rent, the sizes were optimised for best returns on 11-month leases.

Demand-supply mismatch

Google search results showed that in Whitefield alone, there were over 40,000 searches for 1-BHK units but the organised industry was dealing in a mere 200-300 units. This demand-supply gap ensured that a well-thought-out proposition would succeed. To de-risk the project, Kots needed to manage at least 40 units within single premises, and it offered landlords a nine-year assured rental for customised buildings with 1-BHK apartments. Landlords holding small parcels of land were willing to partner, rather than large developers. A 6 percent return was assured with an annual hike of 4 percent. In addition, with the creation and management of gyms, clubhouses and other lifestyle facilities within the complex, the value of the property was enhanced. This made the proposition even more attractive to landlords. Since most of these projects are in newly evolving localities where small landlords exist, the asset value has been increasing 11 percent year on year.

For a landlord who invested Rs 50 lakh per apartment, with a 6 percent rental yield, a 4 percent annual hike, and a compounded annual growth rate of 11 percent, the return on investment after 10 years was 2.5 or 3x. There was also a new category of millennial investors who were buying plots for future sale.  They were happy to build to specifications if it generated passive income regularly. Many also had entrepreneurial ambitions and needed this safety net before they started their own ventures.

Already, the group has 12 projects with at least 40 units per project and 700 units in East Bengaluru areas such as Bellandur, Whitefield, Mahadevapura and recently in Hennur. All are occupied. The promoters plan to escalate this to 1,000 apartments under lease by March 2024. Since tenants come with well-placed IT jobs, they are partially derisked already. A standardised online model at scale ensures predictability. Tenants sign up and pay the rent in advance. If the tenant can’t pay for any reason, a 30-day notice is given, and they have to vacate.

While this group focussed on location, locality and price to get the best returns, the market at the base of the pyramid for affordable rental housing is wide open. With a few tax and other policy incentives thrown in, this could well become the cash cow of the Indian residential real estate market. The promoters here listened to the user community and came up with a model fitting that. Kots has now ventured into studio and 2-BHK apartments measuring less than 600 sq ft each. As the format catches on, it is quite possible that there may be stiff competition from newer operators and landlords. It is still early days, with derisking measures in place. As the market matures, insurance protection may also come in.

E Jayashree Kurup is a writer-researcher in real estate and Director Real Estate & Cities, Wordmeister Editorial Services. Views are personal, and do not represent the stand of this publication.