Human beings are hardwired to live and thrive in closed knit communities. We see it in our familial patterns, our social circle and also, in the way we've chosen to live since time immemorial. The concept of living in communes, with your neighbours just a mere call away dates back to the time humankind began socialising. Through every century, as the political and anthropological face of the human race changed, community living has evolved too. What started as basic hutments and communes, slowly turned into far more sophisticated setups like co-housing settlements. Created from the same social fabric, the idea of co-living is beginning to gain momentum. Its predecessors like Paying Guest Apartments, Shared Student Housing and even Co-Op housing have all pitched in, honing the rough edges of co-living, making it a viable option for the young Millenials, whose needs are more fluid and their patience thinner.
But more importantly, let's also ask ourselves this - can the co-living sphere also double as a viable investment option? Is this millennial hot pick an emerging new asset class that will serve both the digital nomads and the real estate stakeholders? While, some are sceptical of what it might do to potential homebuyers - having ready-made homes at their disposal without burning a hole in their pockets, some think this is the revival the sector needs.
This article attempts to zoom into this phenomenon and take a microscopic look at what co-living can mean for the entirety of Indian realty, looking past the fads and straight into the facts.
CO-LIVING - OLD WINE IN A NEW BOTTLE?
The common question that seems to follow co-living is, what is it? and how is it different from what we were already doing? To many, it might seem like rehashing the age-old concept of living together to skrimp on expenses, by sharing the living costs, with a bonus of friendly neighbours. While in some parts, that might be true, co-living is more than just slumming it out together. Co-living is an idea that satiates the youths' need to have homes that fulfil them, without burning a hole in their pockets. Gone are the days when young professionals, students, or fresh graduates were forced to live in cramped houses, for the lack of funds and space. Co-living lets them live their full lives, within their financial budget.
Birthed and honed ever since, co-living is an offspring of co-housing. Co-housing, as we know it first began in the late 1960s, in Denmark, where a community of people lived in individual home units in a building, while sharing common spaces like an entertainment area, a living room or sometimes even the kitchen. While culturally and politically, they stemmed from socialism, it made the matter of affordable housing realistic and accessible. Co-living spaces function similarly. However, there have been remarkable additions to the setup that helps elevate it to make it the ultimate definition of modern housing.
Co-Living spaces today are homes managed by a company or real estate players, eliminating all contact between the tenant and the landlord. Residents have their own furnished private living quarters and bathrooms (typically) but share common spaces like living, cooking and recreational areas. Based on the idea of a shared economy, all common expenses are split evenly amongst the residents. The rent a resident pays becomes more economical, without having to compromise on the quality of living or space. Co-living spaces are mostly directed towards young professionals and millennials who yearn for a full life, without having to compromise on their standards of living despite their limited budget. Given the fast-paced and dynamic nature of the job market too, professionals are shy of making a huge real estate commitment - be it signing an 11-month rental lease, or buying a home. Co-living spaces pose as the perfect crash pad for such employees, who may have to shift cities, at a moment's notice.
This is a generation that refuses to compromise on style, and comfort, be whatever the situation. Simply making do, is no longer an option. For a generation that is full of energy, innovation and zeal, co-living spaces would not only be complementary, but it would also be ideal.
Here are some notable departures from the usual paying guest system that a co-living space offers a resident, and also amplifies their living experience.
The Co-Living industry in India is less than 5 years old, and yet economic experts predict its long and healthy performance. Several Co-Living companies and startups have now mushroomed across major metro cities and educational hubs across the country, including Mumbai, New Delhi, Bengaluru and Pune. Interestingly, tier-two cities aren't entirely left out of the equation either, with setups like 'Home for Artists' coming up in Jaipur and Udaipur.
STARTUPS CASHING IN ON THE MILLENNIAL DILEMMA
According to the experts' forecast, the co-living sector is expected to rise at a commendable compound annual growth rate (CAGR) of about 17%, in the next five years. The start-up culture has found a conducive and nourishing home, here in India and the phenomenon of co-living has taken the start-up clique by storm, with several big operators emerging over the last few years. Currently, the sector is roughly evaluated to value about $120 million, which indicates a healthy cash inflow. Finance gurus expect the sector to touch the $2 billion mark by 2022, which shows a remarkable markup, with a span of just two years. The predicted growth chart banks on the growing demand from the sector's biggest target audience, and the increase in the number of players in the sector who are catering these demands as well. While the sector is brimming over with potential, there are about just 10 key players in the current market. The list includes CoHo, CoLive, Zolo Stays, Oyo Life, Stay Abode, Square Plums, Stanza and SimplyGuest to name some. Most of these operators came into being within the time frame of 2015 to 2018, with some starting fresh, while others branching out from parent companies like Oyo or Nestaway.
Through the course of the next two years, the sector is bound to draw a lot more operators, it will be interesting to see how the balance between the demand and supply will play out.
However, what works as the sector's unfailing backbone is the steady flow of organised funding. Almost all of these co-living ventures are backed by stable investors, proving once again that the potential of the sector is a reliable investment option.
In 2018, HDFC acquired a 25% stake in the co-living startup Good Host Spaces Pvt LTD, giving it an additional boost to expand. Records show that in 2019 alone, seven of these co-living ventures received funding from investors. These numbers are evidence that the co-living model is viable, and here to stay and just about everyone is rushing to be a part of the market, in whichever way possible - be it investor, or the proprietor.
OPPORTUNITY STRIKES FOR REALTY BIGWIGS
However, what can potentially change the game, is the entry of real estate developers into the segment. India's realty landscape saw some rough terrain all through 2019, but things are slowly looking up for the sector in the new year. While not in perfect shipshape, the advent of 2020 and the Finance Minister's new budget made for a promising start for Indian real estate, with the focus on affordable housing still persistent.
Renowned developers are slowly inching towards broadening their supply to the market, by venturing into the co-living segment. Tripling as an investment, a move to diversify risks and as a fresh entrepreneurial venture, this move seems to hold a lot of promise. Not only does it cement the co-living segment's potential to grow and provide, but it also means that developers are slowly beginning to crawl out of the crushing cash crunch that had befallen them - paralysing all their projects, and other functions, by capitalizing on the growing demand for co-living spaces, and the potential rental yield.
Experts have pegged down a rental yield of almost 8 to 11% that the co-living segment is likely to generate, which is a far cry from the more conservative 1 to 3%, regular residential properties generate. This is good news even for homebuyers and owners, who are wary of low rental income and are looking to optimize their investment opportunities, with reliable real estate brands.
CO-LIVING MODELS - THE INVESTOR'S PICKS
Lets now slowly veer the conversation away from the co-living segment's target audience, to who might participate in providing these homes. An economy is a cycle of giving and takes - investors who are pumping in the funds, and infrastructure, and customers who are the prime consumers, keeping the cycle of the cash flow going. While we have addressed how the co-living segment services the consumers, in varied forms, lets now see what the co-living model holds in store for its investors - be it individual homebuyers, or multimillionaire corporations.
The business model of the co-living spaces is essential in attracting investors to pitching to them to contribute. Experts have identified three viable models that work effectively to drum up business and generate the highest revenue possible.
1) MODEL 1 - Lease and Operate
This is one of the most popular models, given its easy attachment aspect. In this model, a co-living operator leases residential units, or an entire building from a homeowner/property owner and then subleases individual rooms or flat units to its customers. The transactional arrangement between the co-living business operator and the landlord is either a fixed lease rental or a shared revenue plan that spans over 3 to 9 years. Added expenses of up-gradation, changes in the structure are to be borne by the co-living operator.
The benefits of such an arrangement are that it minimises the net cost borne by the operator, and the revenue too, is shared by the operator and the investor, which is a bonus for all parties involved.
2) MODEL 2 - Management Contract Model
This model is slightly similar to the Lease and Operate model. This model involves an agreement between operators, and the investors or the property owners, who allow the co-living company to use their premises for their co-living facilities, but the responsibility of the upkeep of the property lies with the property owner. The operator acts as a custodian and in return gets a commission for their service. In such an arrangement, the tenants sign a direct lease agreement with the property owner, through the operator. This would mean an improved quality of accommodation and would solidify the lease agreement further, given that it's between the tenant and the direct owner. However, one possible drawback could be the lack of initiative taken by property owners, when it comes to repairs and up-gradations.
3) MODEL 3 - Franchise Model
This particular model works on the traditional values of franchising. This would entail an unorganized PG, hostel or even a property owner begetting a co-living operator's brand name and endorsement and then running their co-living service, as a franchisee. In this arrangement, the franchisee gets access to all technological benefits, marketing superiority, staff training and vendor reach associated with any organized co-living sector. This model is apt for developers loaded with unsold inventory as it provides them with an alternative platform to generate higher returns while still retaining their ownership. This would also help other PG and hostels better themselves and offer services that are at par with international co-living spaces, and draw more customers and tenants.
CAN CO-LIVING SPACES MAKE A CASE FOR BEING THE NEXT BIG THING FOR INVESTMENTS IN REAL ESTATE?
Apart from these three concrete ones, experts are privy to other smaller, experimental co-living models that have mushroomed across cities in India, but they are yet to solidify their profitability and sustainability. But based on these three models alone, it is descriptively established that the co-living segment has much to offer to homebuyers, and developers alike - not living them out of the business ecosystem.
For developers, the benefit is apparent - here is an option for them to lease out their unsold inventory, finally loosening the inventory and generating a steady stream of revenue. Apart from that, developers who choose to venture into the field in a way of starting a new co-living company, also act out of a place of risk diversification.
However, our focus is now on the homeowners - working professionals who have saved just enough to invest in a second property. Why would investing in a home that can double as a co-living apartment be a good move, investment-wise? Let's have a look.
By leasing your home to a co-living operative, you are stopping your real estate asset from becoming a dead investment. One might argue that natural renting of property is an option too, however, signing up with a co-working space makes for a more dynamic investment opportunity. While the segment is still ironing out the creases and kinks, in the form of seasonal occupancy and high operational costs, the potential in this industry is undeniable. By betting on it at its nascent stage, we can witness its bludgeoning growth and be a part of its growth story, while also making ourselves a comfortable chunk of revenue.