'Professional Housing': An Emerging Asset Class

India is witnessing rapid urbanisation and more youngsters are migrating every day from smaller towns to urban centres for education and work. IT/ITeS has been a major sector to employ young professionals in Bengaluru, Chennai, Mumbai, NCR, Pune and Hyderabad, fuelling the need for 'Professional Housing' in these cities.

Globally, in high density cities, Professional Housing is a growing phenomenon. In UK, for example, players like Springboard, The Collective, Professional Accommodation, Luxome and Arrive Home are catering to the needs of young professionals. They offer ready to move in serviced apartments and rooms at the prime commercial locations. However, in India the segment is yet to get the attention of the developers and investors.

Market Size

The current market size of Professional Housing in India is 50 million sq ft. spread across the seven major cities wherein Bengaluru accounts for 15 million sq ft. while Hyderabad and Chennai account for 5 million sq ft. each.

Current Scenario

Presently, the young professionals mostly stay in PG accommodation or shared apartments, compromising on their need for an individual and private space. Of late a few players like Aarusha Homes, Co Live and others have started catering to the Student Housing segment; however they do not fulfil the requirements of young professionals and also lack a national footprint.

Current Options & Estimated Cost *

So, currently young professionals spend between INR 60,000 to INR 240,000 per annum on accommodation with comprised spaces, amenities and/or services.

Decoding Professional Housing in India

The feasible size of the development of Professional Housing ranges between 100,000 sq ft - 300,000 sq ft., located in proximity to the economic hubs of the city. Professional Housing constitutes of Studio Apartment, 1BHK and 1.5 BHK; sizes of units varies between 300 sq ft to 600 sq ft . In a typical scenario, the property owner leases the property to an operator on Revenue Sharing / Minimum Guarantee + Revenue Sharing arrangement; the operator rents it to multiple end users.

Requirements of Young Professionals :

1. Location proximity to their workplace
2. Private space & independence
3. Serviced space
4. Modern Amenities including purified drinking water, wifi internet connection, CCTV
surveillance, housekeeping, food, laundry and other essential infrastructure
5. Security

Workable Business Models for Professional Housing in India

In the coming five years this segment can operate on Lease (Minimum Guarantee + Revenue Sharing) model wherein investors can expect an annual rental yield of 10 per cent and annualised ROI of 15 per cent. The Professional Housing Management Operators can expect an annual business of INR 50 Lacs on a 200,000 sq ft. development.

Professional Housing is expected to gain more significance for developers and investors, creating a new asset class. But understanding the changing requirements of the Gen Y professionals and deriving a feasible business arrangement to match that, will remain crucial to profitability.