Nomadic millennials and the changing housing market in India

February 25, 2019 / By  

A person buys a van, redoes it and then travels the countryside; this is the unassuming picture of a nomad that we might paint. Nomads refuse to accept the age old idea of residing at a permanent address – mawkishly dubbed home. This trait has come to define millennials (aged between 21 and 29 for the purpose of this analysis) aka Gen Y. The search for a better standard of living takes them on an equally adventurous journey. More importantly, a better standard of living is not attained by owning more assets. Like the nomads of yesteryears, the nomads of today are more concerned about experiences rather than ownership.

So, why is everyone fixated on studying the ‘outlandish’ preferences of this generation?  India is on track to become one of the youngest countries in the world (with the median age expected to reach 27.7 in 2021 as per Census, 2011).  An estimated 50% of the workforce will be comprised of these individuals with ‘outlandish’ preferences. The result is a marked change in demand patterns and real estate markets need to be well equipped. Gradually, millennials are becoming a major force driving the Indian housing market, which begs a few questions – Where do they stay and why?

It is an established fact that Gen Y has a different take on home ownership than their parents did. While selecting an accommodation, connectivity to workplace, convenience and security are the factors on top of their decision making tree and not the status value of their address. Buying in such an area may be beyond their financial means. While earlier generations moved to the peripheral locations to fulfil their dreams of owning a house, millennials refuse to compromise. They do not mind staying in rented accommodation. With more millennials entering the workforce, the demand for rental housing is expected to go up.

The supply in the residential market needs to evolve with changing preferences.  Driven by technological advancements, we do see the rental housing market getting more organised. But ‘relevant supply’ is restricted, with rental yields remaining range bound (2% – 3%) in the past few years. With demand forecasted to increase to 4.4 million in the three major cities by 2021 and supply remaining constrained, we expect future rental growth.

Figure 1: Estimated Rental housing demand in three major cities – Delhi NCR, Bengaluru and Mumbai
Source: JLL Research, Census, 2011 and National Housing Bank

Mumbai, Delhi NCR and Bengaluru continue to account for a majority of the rental housing demand, the penetration of alternative forms of housing is expected to be promising in cities like Pune, Hyderabad and Chennai. The relatively lower residential prices and increasing migration due to the prominence of the IT/ITes sector make these markets attractive. This presents a huge untapped market for ‘niche segments’ like co-living which offer higher yields – approximately double of residential rental yields. This can further increase to 2.5 times to 3 times of rental yields in the case of customized co-living spaces. From ‘dharamshalas’ to paying guests, co-living has existed in India in various forms.  More recently, it has emerged as a new business model providing a fresh aspect to India’s rental market.

Over the last few years, the co-living supply has grown with various operators like CoLive, Zolostays, Stanza Living and CoHo starting operations in cities like Delhi NCR, Bengaluru, Pune and Hyderabad. Investors have also picked up stakes in a few of these startups indicating the growing confidence in these niche segments. This trend is expected to continue as existing operators expand to other cities and new players enter the market.

With the nomads of today moving to bigger cities and looking for easy access, demand for co-living establishments is expected to be on an upward trajectory. This coupled with a gradual increase in ‘relevant supply’ augurs well for the future of the co-living industry in India.

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