Amidst Market Convulsions, Student Housing Stares At A Brighter Future

The Indian real estate which was already reeling under the pressure of muted demand has been hit hard, after the nationwide lockdown. As economic activities have plummeted, investments in the sector have decelerated. It will take at least two quarters from here for the situation to normalize, despite sales improving in most of the markets.
Amidst convulsions in the overall industry, there are emerging asset classes that stare at a brighter future. In a dynamic market, where rules of investments are rewritten these assets can give smarter returns at lesser risk.

One such asset is organized student housing. In a country that boasts one of the largest pool of university education in the world, investments inflow of ~$100 Million has racked up over the years. This is set to rise further in a Post-COVID where most of the students and their parents would not mind paying a premium for organized and well-managed community living pinned on improved facilities, increased hygiene & sanitized conditions, and larger well-furnished spaces.

Education in India is Set for Momentous Growth

India is home to one of the largest student populations in the world with hundreds of thousands of students migrating to larger cities from townships and rural areas each year. In 2019, 33 million students (and growing at 9.00% CAGR) enrolled in a Full-Time course across 39900 colleges across India, home to one of the largest student populations in the world.

It is estimated that at least half the students migrated to a college town from other cities and rural areas each year. As per official AISHE data, 6.60 million beds are available for these Students to Occupy, which translates into a Bed gap of over 8.00 million beds, as on date.
The new education policy underlined by the government will further back growth in higher education in the country. The plan stipulates to increase access to university education by 50% for high school students by 2035.

Other major parameters of the education policy involve opening up of the higher education sector for foreign universities and deployment of 4-years multidisciplinary UG courses. The country also plans to quadruple its foreign student's intake to 200,000 by 2023.

Demand for Quality Accommodation will Rise

Currently, there are private hostels & PG which serve ~ 85.00% of the market alongside on-campus hostels catering to the need of students. Most such places are unorganized and not very well managed.

However, in a post COVID world, when there will be a growing emphasis on quality and hygienic accommodations. Parents will be willing to bear the incremental costs, in return for better facilities.

This will naturally translate into a larger demand for organized student accommodation with facilities such a larger furnished room spaces, food courts, leisure activities, indoor games & fitness centers, improved sanitization & social distancing norms, doctor on call, etc.

Besides university education, proliferating coaching centers for JEE entrance, civil services, government jobs, medical entrance, & chartered accountancy, etc. will also give thrust to the demand for better accommodation facilities for students.

Elevated Returns

As demand gathers momentum, the organized student housing sector in India will be a fortress for elevated returns and mitigated risk. Higher education would largely be inelastic to the current economic shockwave. As education is set for uninterrupted expansion, the demand for organized student housing facilities will pick up further. Student housing generally has better occupancy rates, which further contributes to higher returns.

Although the downside risk of online education persists, it is a transitory phenomenon. Post suspension of the lockdown, most of the schools and classrooms are set to open soon, as taking education completely virtual has its drawback. The classroom-based pedagogy can't be replaced despite the virtual medium showing its efficacy.

Already numerous players in development, lease, aggregations, and transaction of modernized student accommodation have emerged in numerous Indian cities. In the foreseeable future, the market ascent should further gain momentum. From an alternate investment mechanism, organized student housing has the potential to go mainstream. Already the phenomenon is visible in developed markets such as the UK, Germany, Singapore, etc

There will also be ample opportunities for other Stake Holders - Research & Analytics, Landlord Management Companies, Built to Suit Development Companies, Project Designers, Operators SOP, Operator Value Addition Advisories, Financial Houses, Deal Structuring Advisories etc.

Authored by Ajay Rakheja, Head (Commercial), 360 Realtors

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