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Why buy when you can rent?
In the era of remote working, speed dating and online shopping, millennials are now looking for fluid living options that give them the comfort and convenience of a home, without being tied down by long term commitments and hefty EMIs. With a unilateral shift towards using technology to complete daily chores, to stay connected to work and family, to even finding a life partner, this generation wants a home that can be procured as easily as their favorite meal. Convenience and flexibility now prove to be of more importance than long term value causing more millennials today to rent rather than buy.
Will co-living spaces be the future of real estate?
The fast-paced lifestyle of the future generations to come, be it the student community or the migrant working professionals, will significantly increase the demand for better managed and co-living properties for rent. Given that millennials make up around 30% of the population, investors have an opportunity to service this upcoming demand. New residential projects have already jumped on the bandwagon and are offering several conveniences like a spa & salon, laundromat, 24X7 convenience store, mini theatre, etc. within the complex itself. Semi-furnished and fully fitted out apartments offer tenants the flexibility of moving in on short notice, with bare minimum luggage. These new models have the capacity to push effective rental yield to 8%. According to a survey, 12% of the total housing stock in urban India remains vacant, out of which Mumbai has about 5,00,000 vacant houses. This abundant stock of residential complexes can be optimised and converted by offering facilities like a concierge service, an in-house handyman, and perhaps delivery booths for online purchases as they will be greatly valued.
If you’re waiting for a sign, this is it. There’s no better time than now.
As the wheel turns and history repeats itself, real estate investment opportunities will once again reign supreme. As more individuals look to rent rather than buy, the market will require more individuals to purchase homes with the purpose of renting. The shift in focus from earning solely through capital appreciation will now turn to a combination of rental yield and capital returns.
With the current stock market being volatile, uncertain, complex and rather ambiguous, real estate investments will continue to be a solid, low risk opportunity. Today leasing gives you 2-4% of your capital value which is almost the same as your savings account. With the increase in serviced real estate these figures are likely to jump to 6-8%. Exclusive and top-of-the-line apartments might even be able to get rentals yielding 8-10%.
A combination of such yields at 5-6% combined with a capital appreciation, resulting from yearly rental increases, of 4-5% will give an investor landlord returns in double digits. This would catapult such investments into one of the best options on a risk adjusted matrix. The tenant will be happy to pay only for the experience and value-added services, while the landlord investor will enjoy a higher return as demand for rentals will always outstrip supply. Such an outcome where the scenario for both counterparties is positive, is highly desired but seldom achieved.
“Views expressed are the personal views of the author. Any action taken based on the views will be the responsibility of the user alone.”
To view the original blog post visit www.realinvesting.org
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