Coliving Could Be The Answer To India’s Unsold Housing Stock Burden

Unsold inventory is turning out to be one of the biggest challenges India’s real estate industry currently faces. Even the recently unveiled Economic Survey points this out and suggests that builders need to be willing to take a haircut in order to get rid of their gargantuan burden.

According to the Economic Survey, developers in India’s top eight cities were sitting on an unsold stock worth INR 7.77 lakh crore at the end of 2018. At the current sales velocity, it would take 41 months to sell the available stock consisting of 9.43 lakh units, the Survey noted.

Since liquidity-starved developers might actually not be in a position to reduce prices  —  sources of funding have almost dried up as the NBFC crisis is still not over while a demand slowdown has already impacted the financial health of many a sector biggie — coliving offers them with a better alternative to deal with their inventory burden.

Why Coliving?

The way in which the concept of co-working is changing how traditional commercial work spaces operate in India, coliving is transforming traditional renting. The change is driven by a highly mobile millennial workforce and a growing student population with a new mindset. The country’s young population wants flexibility in housing options that allows them to move quickly in a highly dynamic work environment.

Coliving provides ultra-modern living spaces with a plethora of amenities and a like-minded community, all at pocket-friendly rates and with the flexibility of moving in and out quickly with minimum hassle.

As per the latest report on coliving by our group company PropTiger Data Labs, the coliving space in India’s 9 major markets is set to become INR 2-trillion opportunity by 2023. Globally, private estimates indicate that coliving could become a $100-billion market in the next couple of years.

These numbers are based on hard facts, largely based on behavioural change. Nearly 40% of India’s millennial workforce comprises of migrants, looking for affordable yet modern living spaces that allow for a perfect blend of privacy and social exchange.

By 2023, the number of such migrant workers in India is expected to hit 7 million. Data also show that 15 million of the 37.4 million students pursuing higher education in India in 2018-19 were migrants.

Since the government is targeting a gross enrolment ratio of 30% by 2020-21, there could be substantial increase in the number of migrant students. Industry estimates show that only one in every six students enrolled in higher educational institutions across India has access to a hostel bed.

This demand-supply mismatch is still largely being bridged by unorganised players like PGs although demand for spaces offered by organised players is rising.  Sensing the opportunity, several players have already entered the coliving segment in India. While the supply of beds from organised players increased to over 2.5 lakh in 2019, a lot more needs to be done to cater to the increasing demand.

It is likely that many more organised players will come forward across various price points as the coliving space in India becomes more competitive. In that would lie one solution to a big problem the country’s housing segment currently faces!

New Asset Class

Switching to the coliving model also makes perfect monetary sense for retail investors as the rental yield in this segment is higher as compared to the traditional rental property market. Rental yield from coliving spaces could be as high ad 8 to 11% as against an average rental yield of 1 to 3% in the case of traditional residential properties.

The allure of coworking has major developers in the country already hooked, with many sector biggies having entered the space and many unveiling plans to either enter this segment directly or tie up with budding start-ups to take advantage of the growth opportunity.

At a time when alternative renting options are becoming big among the ever-mobile working population in India, extending their existing business to earn rental income through coliving makes perfect sense for developers, currently grappling with a huge inventory burden amid deteriorating sales numbers.