India’s Rental Industry Outlook 2025: Co-living Spaces To Shape The Future

India, in recent years, has witnessed large migration from the country’s rural parts to metropolitans. Although this has led to an increased demand for rental housing, the Indian real estate market has remained nearly stagnant in the past decade. Factors such as demonetization, RERA, implementation of GST, and the recent NBFC crisis have collectively caused the prolonged slowdown of the industry. The residential segment, in particular, faced a massive blow.

Despite a growing appetite for rental housing, the huge demand-supply gap has always been difficult to meet. According to industry estimates, millions of housing units are unsold or lie vacant across tier-I and tier-II cities in India.

There are two main reasons for that, the first of which is the trust deficit that landlords have been facing to date. Many landlords prefer to keep their properties locked as they dread dealing with brokers and unverified tenants who may later turn into squatters. Secondly, a large section of the population can’t afford to rent houses in urban areas because of ridiculously high deposits and monthly maintenance charges.

Government Initiatives Towards The Growth Of India’s Rental Industry

While the rental industry in India continues to face such challenges, the government has been making relentless efforts to bring about a change in this scenario. In the Union Budget 2019, Finance Minister Nirmala Sitharaman announced several SOPs to boost the domestic residential real estate segment, emphasizing on the need for streamlining the rental housing sector to achieve the ‘Housing for All’ target by 2022.

Among other tax incentives, Sitharaman announced the government’s decision to introduce a new model tenancy law. The Model Tenancy Act, 2019, drafted by the Union Ministry for Housing and Urban Development, will bring transparency to the highly fragmented rental housing space, fostering a greater degree of trust between homeowners and tenants.

The revised act is expected to provide a major impetus to the Indian rental industry, promoting rental housing in tier-I and tier-II cities.

What does the future hold? A glimpse into India’s rental industry

Technology will continue to be a change maker

Large-scale implementation of the Draft Model Tenancy Act, 2019, will require the intervention of technology. Landlords, for example, will be able to check the background of tenants using tech-enabled tenant verification systems.

Currently, the tenant verification process requires the landlords to visit a police station and fill paperwork, adding to their stress. Once this process gets digitized, more homeowners will open their house for rent. Besides, the rental industry will see widespread adoption of PropTech, such as e-signing of rental documents, automated security features and app-based customer onboarding process.

Shared living to gain stronger grounds in the country

As estimated by the UN Department of Economic and Social Affairs (DESA), India will have added 416 million urban dwellers by 2025. New Delhi, by 2028, is also likely to become the most populous city in the world.  Other urban centres like Bangalore, Hyderabad and Mumbai will also experience this rapid urbanization, causing the price-per-square-foot in India to skyrocket. This increase in price will fuel the growth of co-living in the country and bring a tectonic shift in the way rental properties are developed.

While it is still at a nascent stage, the co-living sector is projected to turn into a billion-dollar industry in the near future. A recent report by advisory firm RedSeer Consulting estimates that India’s co-living market could be worth around $2 billion by 2022.

This explains why the co-living space has been touted as the key to solve urban India’s affordable housing crisis. At present, there are nearly a dozen of co-living startups operating in the Indian market, primarily catering to the population in Delhi, Mumbai and Bangalore. In the next 5 years, the number will grow manifold, buoyed by the increased demand for co-living facilities in other metro cities like Hyderabad, Chennai and Pune. The rental industry, therefore, will witness the rise of multiple stakeholders, realty developers, buyers, operators and end-users.  The market leaders will continue to capture the growing market demand, while the smaller players will keep shuffling at the bottom of the pyramid.

Co-living: Paving The Way For A Sustainable Future

Urbanisation is inevitable. However, as cities become denser and house units smaller, the future generation will have no option but to turn towards co-living spaces. This is because the significance of co-living surely goes beyond affordability.

The shared nature of co-living will help in reducing carbon footprint, making it the most sustainable way of living in the future. Given the fact that India is already struggling with the consequences of climate change (depleting groundwater levels, rising temperature), co-living will no longer remain a fad; it will become a necessity in the upcoming years.

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