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<ul><li>China's push for rental housing startups ended up pushing local rentals through the roof, according to a Wharton University report. </li><li>OYO, <keyword id="2766908" type="PERSON" weightage="20" keywordseo="Nestaway">Nestaway</keyword>, <keyword id="3844186" type="PERSON" weightage="20" keywordseo="CoHo">CoHo</keyword> and <keyword id="136437" type="COMPANY" weightage="20" keywordseo="Lemon-Tree-Hotels">Lemon Tree Hotels</keyword> are working on similar models in India. </li><li>The report recommends mortgage trusts as a solution to keep rents under check and still allow co-living to be a viable business model.</li></ul>India's largest budget hotel chain is ready to kick off it's new venture, Hamstede, where private equity major Warburg Pincus will be a majority shareholder. "The board (of Lemon Tree Hotels) has approved an initial investment of $5 million," Chairman and Managing Director Patanjali Keswani told Business Insider. The company will have a 30% stake in Hamstede. And it's not the only one. A whole host of startups like OYO, CoHo, and Nestaway are growing fast. Consulting firm PwC has pegged the market for urban residential housing at $13.5 billion. Delhi-based CoHo had estimated the <a href="https://yourstory.com/2016/05/coho/" data-type="tilCustomLink" target="_blank">co-living market in India at $10 billion</a> in 2016. The model that Hamstede is built on is derived from the successes of three Chinese companies offering co-living spaces Mofang, Nova, and Zirooms, and another startup based in Hong Kong Weave. Warburg Pincus is an investor all these companies and all these firms played a part in the rental housing boom in China in recent years. The Chinese experience with co-living has an ominous sign for Indian tenants. President Xi Jinping pushed for the rental housing boom <a href="https://www.reuters.com/article/us-china-economy-houseprices-rent-analys/how-chinas-plan-to-develop-rental-housing-backfired-idUSKCN1LU0JA" data-type="tilCustomLink">but it backfired</a>. Despite the increased supply of homes, rents in China’s major cities soared in the double-digits. While the companies' valuations spiked, accommodation became unaffordable for many students and young professionals. In some cities, rents increased by as much as 30% between 2017 and 2018, according to <a href="http://d1c25a6gwz7q5e.cloudfront.net/reports/2019-03-08-E-House-Poly-FINAL.pdf" data-type="tilCustomLink" target="_blank">a study by Wharton University</a> released in March 2019. How co-living business works "Today if you live in Mumbai, and you work in Lower Parel, you cannot afford an apartment there. Your apartment will be in Borivali and travelling two hours one way everyday. I will put up a co-living space very close to Lower Parel but the trade-off is I will give you a far more compact living area, where you spend the night. The common area will be very social, where youngsters can hang in the evening, with a living room and an open kitchen and so on," Lemon Tree Hotels' Chairman Patanjali Keswani said explaining the model to Business Insider. However, in China, the rush build capacity home-owners borrowed heavily and companies bid generously for land parcels. The excess cost was passed on to the tenants, the Wharton study showed-- an important lesson as Indian startups chase the same opportunity. Big money is chasing these new co-living ventures. Not just Warburg Pincus, Tiger Global, and Singapore sovereign wealth fund GIC are all invested in the idea in different countries. As India opens up to co-living, tenants will be looking for affordability, particularly in big cities like Mumbai where rents are already beyond many people's reach. The solution The Wharton study recommends securitisation as a possible solution to keep both the rents and the financial pressure on companies low. Companies can raise money against the rents receivable and distribute the income as as dividends to shareholders. In formal terms, this will be a real estate investment trust. Both Mofang and Zirooms have raised money using this route in China, but retail investors are not allowed to invest in these securities yet, according to the report. If the experiment helps in cooling the Chinese property market, both owned and rental, this can become a new avenue for financing high-cost co-living projects without adding burden on the tenants. An idea Indian companies can borrow too. SEE ALSO: <a href="https://www.businessinsider.in/from-pgs-to-co-living-spaces-how-student-accommodation-is-changing-in-india/articleshow/65201577.cms" data-type="tilCustomLink" target="_blank">From PGs to co-living spaces: How student accommodation is changing in India</a>

China's experience with co-living should be a warning for tenants as well as companies in India

Remember the time when you might have moved cities for further studies? If your institute or college/university had a hostel with a vacant room for you, then you were one of the lucky ones. For most others, it has been a long, and often uncomfortable, saga of living as <keyword id="96046" type="ENTERTAINMENT" weightage="20" keywordseo="Paying-Guests">paying guests</keyword> (<keyword id="6356386" type="UNKNOWN" weightage="20" keywordseo="PG">PG</keyword>) or sharing small apartments/dorms or both. Costs have been sky-high and the quality of places to rent and put in a decent few hours of study have rarely ever matched up. ‘Student living’, quite similar to a working professional renting an apartment in a big city, has been a sizable market for a while. The demand is always high and the supply...well. But for any market of this sort, sooner or later there will be people who recognise the need to organise it and optimise the opportunities. And as is with most unorganised sectors today, there are startups trying to change it. There are approximately 34 million students in higher education institutions and the unmet demand for student housing remains as high as <a href="http://www.jll.co.in/india/en-gb/Research/Student_Housing.pdf?92f28958-cb33-440c-9835-04cddda7728e">30% – 60%</a> across the top states. According to AS Sivaramakrishnan, the Vice President at Jones Lang LaSelle Incorporated, the student living market is expected to rise to <a href="https://www.thehindubusinessline.com/news/real-estate/student-housing-graduates-to-pampered-league/article9981882.ece">₹160-180 billion</a>, based on data on student loans, capacity shortage and parents’ growing willingness to spend. What was once a series of shoddy, semi-furnished, cheap homes, has now transformed to swanky urban service apartments for students. Companies like <keyword id="3844186" type="PERSON" weightage="20" keywordseo="CoHo">CoHo</keyword>, <keyword id="6753430" type="UNKNOWN" weightage="20" keywordseo="homigo">Homigo</keyword> and <keyword id="2366577" type="PERSON" weightage="20" keywordseo="zolo">Zolo</keyword> are moving towards a more “consumer-centric” approach and are trying to bring in facilities like gaming rooms, laundry services, WiFi, and even discount coupons for students looking for accomodation. The startups offer single, double and triple seater rooms and their prices range between ₹23,000 and ₹12,000 (excluding electricity), which is slightly higher than what student accommodations around universities like Delhi University (DU) cost right now. Of course, cheaper options are available, but living conditions in such accommodations have been <a href="https://www.thehindu.com/news/cities/Delhi/not-just-admission-du-students-also-race-for-rooms-on-rent/article19298616.ece">talked about aplenty</a>. The idea is to bridge the gap between what people want and what they get. The industry is less than five years old right now with most companies having begun operations around 2015-16. In fact, most companies are still battling it out in their home bases, but expansion is inevitable. Only Zolo, which started out in Bangalore, was able to move out to Pune, Chennai, Kota and Delhi-NCR. For instance, CoHo, which is based in Delhi, houses about 2,000 students. The CoHo residences are more than 45 in number and are mostly concentrated near DU’s North campus and Gurgaon region. They are clocking an annual revenue of more than ₹170 million ($2.5 Million) as of today. How does it all work? The companies lease residences on a long-term rental agreement with building owners, lasting between three to seven years. They redesign the residence before renting them out and students sign the agreement with these companies. They also have on-site staff, like wardens, housekeepers and security guards, for property management and are responsible for providing tenants with assisted living facilities. The revenue generated from tenants is shared with property owners on either fixed rental income or revenue sharing basis. Revenue sharing allows owners to take a certain percentage (30-45%) of the total generated each month, or they can also choose to get a fixed amount every month instead. The owners receive an increment of about 7-10% every year. “Leasing property out to these companies saves a lot of efforts and money. The companies redesign the property and take care of its maintenance, so I don’t have to run around. My income also doesn’t fluctuate as much now since I get a fixed amount of revenue irrespective of whether the room is rented out or not,” said Yesh Reddy, the owner of one of the Homigo properties. A whole new world Here’s the cool part, all of the founders are less than 30 years of age and have struggled while living in paying guest (PG) accomodations. Therefore, who better but these guys to figure out exactly what students need? “The focus of brokers and PG owners is only on money and not on the students’ lifestyles. Our experience with this difficulty is definitely a driving factor for us,” said Nikunj Batheja, the co-founder and CEO of Homigo. In terms of space design, the companies try to make the rooms thematic, fun, aesthetic and clean. A lot of these companies, like CoHo, have study halls, activity rooms and even gaming rooms. (Study area at CoHo) (Gaming room at CoHo) The residences may be better than regular PGs, but lag when compared to the rest of the world. “The ambience is amazing at CoHo. It feels more like home. It is well lit, ventilated, clean and has an open kitchen that you can use. However, what’s lacking is that residents can’t redesign their rooms as per their wishes.” Muhammed, one of the residents, added. Though the furniture can be rearranged, sticking posters or putting up hooks and nails on the walls is totally off limit. (Common dining area of a CoHo residence) (Kitchen of a CoHo flat) Furthermore, compared to traditional PGs, the room rent doesn’t differ based on its size. That’s because the companies take up the whole property from the landlords and then essentially sublet them. So, though two people might be paying the same amount in the same flat, one might end up getting the raw end of that deal. Security and peripheral services Another major change in the industry is the use of technology to strengthen security in the residence, with biometric cards, facial recognition, CCTV, sensors etc (CoHo’s biometric security machine) The accommodations have further used technology to “make life easier”. They give students free Wi-Fi with a 24-hour backup service. There is also a facility to make online rental payments. CoHo also gives “CoHo credit” that is a payback as a way of incentivising tenants paying on time. Most of the companies have an app that helps students interact with them. The app lets you give ‘commands’ to the companies regarding housekeeping services. It can also be used for feedback and complaints, and keeps you updated about the progress in your residence, like upcoming social events and revised food menus. “It is sometimes way too systematic. So, if my friend comes over to stay at my place, I will have to register in advance with the app and even notify them if she’s going to be taking a meal. It gets chaotic,” says Khushi Agarwal, a student from Miranda, who has had first-hand experience of staying at these accommodations. <keyword id="3347984" type="PERSON" weightage="20" keywordseo="co-living">Co-living</keyword> or community living is the most distinctive feature of the sector. The companies conduct different social events, like stand-up comedy, and connect all residences through internal messaging apps. This makes their accommodations vibrant and also helps in their own promotion. (Social Night at Homigo) (Friends Theme party at CoHo) However, Muhammed, a recent St. Stephen pass out who had been staying in a CoHo space in Kamla Nagar, for about two years, told Business Insider, “These places are expensive compared to the regular PGs and cater to only a certain class. It is not like I find people from all backgrounds here.” (Homigo’s hangout spots) These companies, like CoHo, have also tied up with the community of local vendors and other known companies like Foodpanda and Uber, to get discounts for their residents. In terms of hospitality, these companies take care of all the in-house repairs, laundry services, on-demand room cleaning and even concierge services, irrespective of the kind of accomodation in which a student is living. There is no extra charge for these services. (The balcony of one of Homigo residence) (A Homigo residence) The competition Compared to what Homigo, CoHo and their brethren provide, traditional PGs don’t really make for much competition. The only real difference here is in the fact that these residencies are more expensive than your usual <keyword id="2630822" type="PERSON" weightage="20" keywordseo="student-accommodation">student accommodation</keyword>. And given the shoestring budgets students usually live on, that could make for a big difference, as many told us. Both the students Business Insider spoke to, Khushi Agarwal and Arshad Mohammed, said you should try these only if you can afford them. The hassle of living in a PG, for the students, begins with the search. Students either look for a PG online or physically go out and roam about to find the suitable one. Otherwise, brokers take up a lot of money. Once a student finds a PG, the facilities provided to them are not very decent. Himanshi Baithla, living in Shakti Nagar, said she has shifted three PGs this year and is still not fully satisfied with her accommodations. Problems range from strict landlords, to bad food and curfew times. Though students can find PGs for as low as ₹4,000, the sacrifices are also considerable. So, essentially, it’s between the devil and the deep sea. While you get what you pay for, you cannot pin up that favourite poster. Alternately, you get better food and perhaps your laundry is taken care of. But at the end of the day, for students and their parents, it will come down to money. And in that scope, student living and the startups dealing with it, still have miles to go.

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China's experience with co-living should be a warning for tenants as well as companies in India

Sriram Iyer

From PGs to co-living spaces: How student accommodation is changing in India

Khyati Sanger

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