Step aside commercial and residential, alternatives are apparently the new kids on the block! Of late, the Indian real estate market has been abuzz with alternatives, as they are Increasingly attractive to developers and investors with the promise of higher rental yields and considerable headroom for further growth.
The alternatives constitute student housing, senior living, education, and healthcare, which are largely untapped segments in India. Unlike Western countries, where alternative segments have gained maturity, India provides an opportunity for developers, service providers and operators to create solutions specific to India, while leveraging learning from across the world.
In addition, developers and investors can diversify their portfolio to mitigate the risk of investing in a select traditional asset class. Moreover, the recent compression of yields in the commercial sector and a slowdown in residential sales have resulted in developers focusing on alternative asset classes.
Student housing is fast becoming recognised as an asset class with tremendous potential in India, with around 34 million[1] students currently in the higher education space, with a third of them studying outside their home state. The massive increase in demand, growing number of colleges and universities, unmet demand and student mobility across the states are the major demand drivers in the country.
Healthcare has become one of India’s fastest growing sectors as it is experiencing a new surge of opportunity due to its strengthening footprint, services and increasing expenditure by the public as well private players. Affordable medical cost, unmet demand in Tier III cities and rural areas, all age group population as the target segment and the growing elderly population are other major drivers for the asset class.
The senior living market is at a nascent stage in India. However, it is gradually emerging and the sector is gaining ground in the Indian market. As per the recent JLL report, the population above 60 years in India will touch approximately 170 million in 2025 and 240 million in 2050. Today, the 60+ population is over 100 million in the country. Factors such as the increasing 60+ population, unmet demand, and the emerging customer segment with specialised needs like better security, healthcare and community living can create the opportunity for developers in this segment.
Education is leading the way with an increased number of real estate investors, developers and international as well as national players targeting this segment in India. The country has more than 1.5 million[1] schools with over 260 million students enrolled. India, having a literacy rate of only 73% compared to the world average of 84%, presents an opportunity for private players to explore the untapped market. The demand for private education is being driven by a growing school-age population and families desiring better quality education for their children.
Figure 1: Alternatives – Industry Life Cycle in India
Source : JLL REIS
Given the growth and return potential as well as stable cash flow due to the long lock-in period, the alternatives segment is all set to take off in India.
It is an irrefutable fact that more investors will gravitate towards these emerging assest classes, making alternatives very attractive to developers and investors alike. As discussed earlier, stable rent income with a long lock-in period is the major advantage of investing in this segment with much less volatility and uncertainty.
[1] JLL Report: Student Housing, A New Dawn in Indian Real Estate
