Student housing is no more about poorly kept PGs, as realty sector builds on higher education boom

With an explosion in the higher education space since early 2000s, Indian students depended on badly managed paying guest accommodations in the face of inadequate in-campus facilities. Now, real-estate service operators are trying to change this

The organised real estate entering into student housing will not affect small players like us much, as commercial properties that bigger players can target are available only in the outskirts

Shailendra Bhandari
Paying-guest-accommodation manager

That the real-estate market in India has all but stagnated is an understatement. Almost every other month, market-research firms publish reports of unsold inventory of real-estate companies in major Indian cities. In March 2018, property consulting firm JLL India claimed that there were 4.4 lakh unsold homes in seven big cities in India in 2017, with the National Capital Region of Delhi leading the pack with 1.5 lakh unsold homes. These figures neither include stalled projects, nor do they include unsold inventory of commercial properties, which can make the real-estate story look really bad when added.

At a time when courts have taken a strong view of unfinished real-estate projects – which has even resulted in major corporate honchos spending time in jails – there is a murmur in the sector, which, if it consolidates into an industry-wide trend, can not only rescue the sector but also bring relief to its targeted audience. SME Futures earlier reported that real-estate firms are wooing small and medium enterprises and start-ups in the commercial space to remain relevant in the market. A logical offshoot of this approach is the maturing of co-working space segment in India. But, in the housing segment, the saviour seems to be the burgeoning student community of India, especially the one that engages with private institutions and universities.

Rise of higher education

India achieved the growth in gross enrolment ratio (GER) in higher education of 24.5 per cent in 2015-16 and 25.2 per cent in 2016-17, according to “Student Housing: A New Dawn in Indian Real Estate”, a report published by JLL India, which in turn quotes data from the Ministry of Human Resource Development. This figure is likely to touch 30 per cent by 2020.

With such high growth in student enrolment and the resultant migration of a young population, India promises an unprecedented growth in the student housing sector, raising the probability of it going mainstream within the real estate sector. The sustained GER in higher education resulted in 15 to 18 per cent growth in the housing rental yield this year, according to the JLL report. This yield rate is exceptional and way higher than the office and retail yield rates, which stand between 10 to 12 per cent. (Yield is the rental income as a percentage of the property’s value.)

With increasing student enrolments, the existing university operated hostels experience a capacity crunch, most of which are full beyond their threshold with next to no possibility of accommodating more students. According to the data gathered by the University Grants Commission for 2016-17, the hostels in deemed universities have an occupancy rate of about 120 per cent and the corresponding figure for the state and Central universities stand at 99 per cent and 110 per cent respectively. Also, the student population in higher education has grown at a high compound annual growth rate of 9.2 per cent since 2003. This opens the door for the new and organised players to venture in the business of student housing, as the capacity constraints in campus facilities create a huge demand and supply gap.

Old-school paying-guest accommodations

So far, the student community has depended heavily on in-campus hostel facilities. However, it is common knowledge that hostel facilities are inadequate in most educational institutions, especially for women students and wherever such facilities exist, their infrastructure leaves a lot to be desired for a comfortable stay. This prompts many students to search for paying-guest or rented facilities in the vicinity of their colleges and institutes.

The paying-guest space is mostly as chaotic as the the in-campus hostel facilities. From time-to-time, the local government makes compliance demands on this segment, though it has not been able to formalise the sector to a great extent. Ankit Arora, the media in-charge of the Noida PG Association says, “Noida district magistrate B N Singh issued a directive in February to all hotels, guest houses and paying-guest-accommodation owners to get their businesses registered under the Sarai Act, 1867. As per the act, all hoteliers and commercial PG accommodations are supposed to submit a copy of the trade license to the district administration as proof of their work.” On the one hand, this directive has increased the cost of compliance, it has also increased the maintenance cost, especially for paying-guest-accommodation owners. All paying-guest accommodations have been directed to install commercial electricity meters even when the owners claim that their properties continue to be domestic. The per unit cost of electricity in Noida is about Rs 5 to Rs 6. Now, students will have to bear the new electricity cost of Rs 11 per unit.

The paying-guest-accommodation owners are fighting to protect their business interest in the face of the government’s bid to increase its revenue. Vishesh Tyagi, the founder-president of the Noida PG Association, says, “We have already submitted memorandums to the member of Parliament from Noida Dr Mahesh Sharma and the local member of legislative assembly Pankaj Singh, in which we have demanded a separate regulation for the paying-guest accommodations apart from the Sarai Act that would enable the growing demand of three to four lakh inventories to be met soon legally.”

Student housing as a service

The large migration of students for higher education to prominent urban centres has led to the rise of the concept of student housing as a formal business sector. This concept finds its roots in early 2000s in the USA, followed by the United Kingdom in 2003. India’s student housing market is new and emerging; however, it has already started demonstrating a swift growth curve for the future and formalisation of the space. In cities like Bangalore, Delhi and Mumbai that serve as education hubs for students, around six to seven per cent of the total migrants come to seek higher education. Moreover, there lies a latent demand of 2.2 lakh units along with additional annual requirements of 22,000 units in southern cities, like Bangalore, Chennai and Hyderabad, according to Meraqi, a real-estate investment-management firm.

The inability of informal players to fill the demand-supply gap in student housing – they have catered to less than five per cent of the addressable market up to now – has opened up the sector and drawn mid-level and new real-estate players, like developers, service providers and start-ups, into it, especially after the demand in more traditional housing and office spaces declined. The co-founder of Placio, a leading service provider in the student-housing space Rohit Pateria asserts, “The said downfall in the real-estate business is an opportunity for us, as properties are available at lower rates. The sector is already catching fire with so many real estate and pension funds [coming in].” He adds that with the entry of so many organised players in the market, the sector will see a huge supply in the of more than 1,00,000 lakh beds by 2020.

One would think that the entry of organised and much bigger real-estate players will put the fear of unfair competition in the minds of paying-guest-accommodation owners and smaller brokers. However, a paying-guest-accommodation manager and broker Shailendra Bhandari says, “The organised real estate entering into student housing will not affect small players in the market like us much, as commercial properties that bigger players can target are available only in the outskirts of Delhi and the National Capital Region. However, a large number of students lodge in areas falling in designated domestic areas, as a number of institutes and colleges are closeby. So, it is unrealistic for real-estate developers to acquire domestic properties and re-register them as commercial ones after paying hefty conversion charges.”

Pateria, however, has an aggressive approach and long-term plan, which may make the likes of Bhandari uncomfortable in the long run. “We have divided our expansion plans of 10 years into different slots, wherein Placio alone expects to deploy over 25,000 beds within a year into 50 zones, named as student districts running pan-India and covering near 800 universities and 18,000 colleges,” Pateria adds.

Despite the entry of private, organised real-estate players in the student housing sector, it clearly lacks policy guidelines. The attempts like the one made by the Noida authority to declare paying-guest accommodations as commercial entities for the purpose of electricity meters are at best patchy. Both the formal and informal players demand clearer guidelines from the government and are definitely concerned about the application of goods and services tax (GST) and the Real Estate (Regulation and Development) Act, 2016, in the sector. “There is a lot of ambiguity in the system today and a dire need of regulation for the student housing industry. The government should be clearer on GST and regulatory norms under the Real Estate (Regulation and Development) Act,” feels Bhandari. “This will enable all the market players in the industry to work well and with full confidence and authenticity. We ourselves await such developments at the government’s end,” he adds. Pateria echoes this sentiment as he says, “One thing we desperately need is more transparency from the government in terms of norms and taxes.”

Concerns

How different is the new-age student housing from the existing informal accommodations? From the customer’s perspective, the concept of formal student housing has evolved from an approach of providing just shared accommodation and basic facilities to a blend of socially active co-living culture and a good standard of living in a state-of-the-art premises. This formalisation of student-housing space has most certainly impressed some students. “The concept of fully-organised and managed system of accommodation is working well for us. Transcending the conventional dull and boring atmosphere that was provided earlier, these student housing spaces are surely a home away home,” says Misbah Ali, a communications student at Delhi’s Jawaharlal Nehru University who has experienced a number of student-housing premises.

Savita Mehta, vice-president, corporate communication, at Amity University has mixed feelings about the entry of start-ups and organised players in the sector. “Since the students are at such a tender age where they could be extremely vulnerable and fragile, there rests a huge responsibility on the shoulders of universities and the caretakers to ensure their security. Hence, there lies an unanswered question as to how the accountability factor will be fulfilled in such housing schemes.” She also says that her university has not entered into any tie-ups with any such housing service provider, builder, broker or developer.

Pateria seeks to allay such fears of caretakers and parents of young students. He says that although located in the same premises, they have separate hostel buildings for boys and girls, which are well-equipped with security features and personnel, such as biometrics, wardens for each building and an SOS app that enable students to avail assistance in medical and other emergencies. Through the app, his company immediately provides assistance to students. “We have tie-ups with physicians and registered medical practitioners along with various universities as well. Moreover, smoking, drinking and entry of the opposite gender into hostels are all strictly prohibited. With all such facilities, we ensure the best possible living ecosystem for students, but surely we cannot look into their moral and character development. We believe that it is their personal space … and so we are not into any kind of parental surveillance,” adds Pateria.

It is clear that the high demand-supply gap and saturation in occupancy levels in the sector are likely to attract further investments in a significant way. However, although organised players have already intervened in this sector, their number continues to be small. The informal players who dominate the sector have catered to just less than five per cent of the addressable market, as noted above, and hence the demand remains unmet. Now, what lies ahead is the competition that will be induced among formal players, as they would definitely try to compete by improving on amenities and attracting further investments.

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  1. The large migration of students for higher education to prominent urban centres has led to the rise of the concept of student housing as a formal business sector. An interesting story, must say!

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  1. The large migration of students for higher education to prominent urban centres has led to the rise of the concept of student housing as a formal business sector. An interesting story, must say!