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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

<ul><li>Knight Frank's latest report pegs the shortage of beds among university students in India at 8 million.</li><li>The report has also estimated that the shortage can rise to 13 million by 2025.</li><li>Lemon Tree Hotels which is investing in student housing under the Hamstede brand expects the new business to eventually help its hotels too.</li></ul>There are 34 million students in Indian universities and the available accommodation for them is nowhere close to necessary. "The purpose built student accommodation (PBSA) market in India is in its infancy, despite the country boasting one of the largest populations of undergraduate students in the world," Knight Frank said in its 'Global Student Property 2019' report. The net shortage right now is around 8 million right now and can rise to 13 million by 2025. And these are just in the big cities. Private property owners and hostels meet some of the demand but quite often, they do not meet the students' expected standards. In many places, landlords are reluctant to lease their homes to a student or a group of students due to fears of their own. Wherever there is unmet demand, there is an opportunity to make money. Investors have poured in about $100 million in the space so far but that's not enough either. About $1oo million have already been invested in creating spaces for migrant students but there is space for a lot more. How the investors view the opportunity "The market is 10 million students, who are not in the campus but are migrants, who are staying various types of paying guest type of accommodations," Patanjali Keswani of Lemon Tree Hotels told Business Insider earlier this year. Lemon Tree Hotels is the country's biggest chain of budget hotels, which is also expanding into other spaces like co-living and student housing under a different banner called Hamstede. Global private equity major <keyword id="6402698" type="UNKNOWN" weightage="20" keywordseo="warburg-pincus">Warburg Pincus</keyword> is an investor along with Lemon Tree Hotels in Hamstede-- which will be an associate company for Lemon Tree Hotels. However, Co-living and student housing will be sold under different brands. The board of Lemon Tree has approved an initial investment of $5 million (₹35 crores) in the joint venture. Including the share of Warburg Pincus and the debt Hamstede can raise over the equity, there will be a total investment of $50 million by the end of 2019. "To me this is exciting because these students are future mid-market, aspirational customers," Keswani added highlighting the potential for his mainstay hotel business. "The forecast is highly promising and is likely to offer investment opportunities in this alternate asset class for domestic and international investors” Knight Frank India CMD Shishir Baijal <a href="https://economictimes.indiatimes.com/industry/services/property-/-cstruction/student-housing-gets-investment-worth-usd-100-mn-in-2018-potential-to-attract-usd-50-bn-report/articleshow/69689476.cms" data-type="tilCustomLink" target="_blank">reportedly</a> said. SEE ALSO: <a href="https://www.businessinsider.in/business-insider-stack-all-you-need-to-know-about-the-future-plans-of-lemon-tree-hotels/articleshow/68680640.cms" data-type="tilCustomLink" target="_blank">SLIDESHOW: All you need to know about the future plans of Lemon Tree Hotels</a>

Indian students are short of 8 million beds-- and there's a lot of money to be made

<ul><li>Lemon Tree Hotels is putting together a unit that will be led by a chief technology officer.</li><li>The investment into technology will have three strategic goals, according to CEO <keyword id="6370083" type="UNKNOWN" weightage="20" keywordseo="Patanjali-Keswani">Patanjali Keswani</keyword>.</li><li>The company is looking to identify struggling hotels in buzzing locations.</li></ul>Average <keyword id="7487693" type="UNKNOWN" weightage="20" keywordseo="hotel-room-rates-in-india">hotel room rates in India</keyword> are still 30% below what they were at the end of March 2008, according to Axis Capital. While waiting for an imminent turnaround in the industry, Patanjali Keswani, the founder and chairman of Lemon Tree Hotels is putting together a technology team that will be led by Chief Technology Officer (CTO). While the CTO is yet to be hired, the goals have been defined. "Technology will not be a support function, but it will be a strategic function and we will share it with Hamstede," Keswani told Business Insider. Hamstede Living, is a joint venture between Lemon Tree Hotels and global private equity major Warburg Pincus, that will offer co-living spaces for young, urban professionals and housing for migrant students in Indian cities. Lemon Tree Hotels will have a 30% stake in Hamstede. There are three ways in which Keswani aims to use technology to boost his hotel business but this will not include internet of things (IOT). "You don’t need your phone to open your curtains. The mid-market customer does not want it," he said adding that,"I don’t agree with what a lot of these international guys are doing where they are spending a lot of money on what I currently feel are doubtful return on investments. You can have your cell phone doing everything in the room, but as a consumer myself that’s not a real delight. It’s going to cost me Rs 10 lakhs a room, but I am customers are not going to pay me even Rs 2 lakhs a year." 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 So what is it that Lemon Tree Hotels wants from its CTO. Find struggling hotels in hotspots The company has developed an algorithm that will analyse and project traffic in key locations using a combination of data on airline traffic, average room rates, and other such data points that may be a proxy to predict demand for hotel rooms. The next step is to identify under-performing hotels within a market. "We may not go build a hotel there. But if someone has 55% occupancy in an area where the others have 80% occupancy, then, we move to human side. We can talk to the owner to either lease the hotel or let us manage it for a fee. We think, with our customer base and reach, we can improve your performance at cost and revenue level," he said. At the end of December 2018, over 30% of Lemon Tree Hotels' rooms were owned by others but managed by the chain in exchange for a fee, according to research by HDFC Securities. Enhance the loyalty programme A three-year old loyalty programme has played a big part in helping Lemon Tree Hotels retain customers. "I was astonished in the last five hotels we have taken under management, in three months, 20% of the hotels’ inventory has come from the loyalty programme. It’s an amazing number. Typically, hotels cash break-even (without accounting for interest cost) at 25% occupancy. If you include interest cost, the break-even point is at 40-45% occupancy. If in 3 months, I get 20% (from loyalty programme) which means you are at cash break even in 3 months, that too in a bad year. So, going forward, why would I not leverage this? We are going to invest more capital in our mobile site, in loyalty, and in technology," Keswani explained. Productivity and cost control How can technology help hotels save cosrs? "I have a call centre with 150 people who get thousands of calls everyday from customers. 80% of those queries are very, very repetitive and predictable. Therefore, I can put chatbots and reduce the headcount or improve the productivity," Keswani said. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 The other leg of the cost control was to implement a management information system (MIS). "We have ensured all our platforms talk to each other through a middleware. How do I get real-time data to control costs, to manage multiple aspects more efficiently? The MIS will help us respond faster," he added. SEE ALSO: <a href="https://www.businessinsider.in/business/heres-why-hotel-room-rates-in-india-may-double-in-the-next-3-to-4-years/articleshow/68664363.cms" data-type="tilCustomLink" target="_blank">Here's why hotel room rates in India may double in the next 3 to 4 years</a>

India's largest budget hotel chain is spending on technology instead of discounts

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

Sriram Iyer

Indian students are short of 8 million beds-- and there's a lot of money to be made

Sriram Iyer

India's largest budget hotel chain is spending on technology instead of discounts

Sriram Iyer

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