Renting smart is the new millennial thing

The Indian home rental market over the past few years has grown by leaps and bounds in major cities. Online home rental space in India has expanded in the recent years as rental provides a practical solution to customer needs.

The seeds of the online rental market were sown by the advent of e-commerce in India almost a decade back, which made everything just a click away. Millennials, who are the first digital natives and have to struggle with finances, were on the forefront in catching up on this new trend.

While electronics and apparel were available online since the inception of e-commerce in India, finding houses on the digital platform, which is a relatively newer phenomenon, turned out to be a major boon for the customers as it drastically reduced the time required for searching houses.

Multiple platforms

This concept has made it easy for consumers to search their flats according to their affordability, locality and preferences. Currently, consumers have started to take notice of the online platforms. Hence, it has become the most preferred way of searching houses for rent.

Online house rental start-ups gauged this need of the millennials, who have been the major demand driver for rental homes, and created a platform of a pool of houses available for rent in every micro-market across the country. Online home rental solutions platforms are the only point of contact for customers rather than landlords, thereby maintaining a professional relationship with the tenant. With such a hassle-free way to search homes with a transparent litigation process, millennials find it easier now to look for homes from a place as opposed to searching physically.

The start-ups ensured a reasonable rent and advances for the property, thereby attracting more. The so-called 'renter' previously had to shell out on an average 10 months of rent as the advance for renting the property and unreasonable rents, which were out of bounds for the youngsters. These start-ups allowed only two-three months of rents in advance and a reasonable rent for the properties listed on their portal.

Also, with the ever-increasing property rental rates, millennials are seeing the rise of sharing and shared economy that provide access to products and services without the burdens of ownership. Ranging from the availability of houses for rent on individual-bed basis to household products, everything is being bought on rent and being commonly shared among the tenants.

Some of the home rental start-ups are even offering fully furnished houses, making it convenient for the city hoppers who don't prefer to stay at hotels for longer durations or prefer a homely environment. However, discrimination on the basis of cultural differences, eating habits and preferring families over bachelors were the major lacunae plaguing the online rental industry. This has been resolved by the online players as the requirements for tenants are clearly given, enabling the renter to make informed decisions

Apart from that, there has been a marked shift in the nature of current crop of consumers, mainly millennials, who prefer renting rather than buying as they don't prefer to stay in one city for long, and also because the real estate costs involved are very high and the returns on investment has been very subdued. Young immigrants and duos in junior positions in a job like to explore different cities and consider rented homes as a viable option. They want to lead a lavish life with all the luxury amenities. Besides, they prefer to stay at a place with less number of barriers which doesn't hinder their lifestyle. These issues have been addressed with home renting now being online and providing transparency.

According to experts, while the set of consumers are entirely domestic, the supply side is being driven by NRIs. India has many homes which are locked away by NRIs as they fear their homes getting misused by real estate brokers. However, with start-ups giving them assurance of legal use of their property, more supply is coming into this market and expanding the coverage area. Also, it guarantees the landlord of an assured return on the property through rentals. Statistics show that nearly 70% of the houses under the network of home aggregators now belong to NRIs.

Ground reality

Historically, the home rental market has seen a rental yield of 1-2% discouraging the houseowners to open their properties for tenancy. However, the ever-growing demand and supply deficit situation and the nature of the market shifting to a more organised manner has helped increase the rental yield for the house owners, thereby attracting more. The home aggregator and management start-ups said they were well aware of the key concerns of the NRIs on maintenance of their properties.

As home rental start-ups generally deliver 20-50% higher returns compared to returns they were receiving from the conventional brokers in the market, homeowners find them attractive. Also, given their strong customer base and high occupancy ratios, they assure uninterrupted rent payments to property owners even when some of those properties were vacant for short periods.

Also, a majority of brokers rent out the properties to families and avoid renting them to several individuals in a model similar to the paying guest model, owing to handling issues. However, start-ups have been renting out the properties under their control on individual bed basis, fetching higher returns on each property. Such a setup has become a win-win situation for both houseowners and tenants and is leading to an ever growing home rental market in India.

Migration has been a major factor in the growth of this segment. The Economic Survey 2016-17 says that migration has almost doubled, to 9 million between 2011-16 from 5.5-6 million between 2001-11. Though the survey shows the highest migration to Delhi, there were well over 90 cities in India with annual population growth rates of 3% or more. According to the survey, the urban housing shortage in India in 2012 was estimated to be almost 19 million homes, with the vast majority required for lower-income households.

Addressing the rental housing market in a broader manner will require multiple reforms and the repeal of Rent Control Act will create confidence in the sector. Today, 377 million urban residents live in over 7,900 urban settlements and every year, millions move to towns and cities, or dense linear settlements along national and state highways. It is essential that as the country urbanises further, viable solutions to the housing conundrum are addressed. The potential of rental housing to meet these challenges should not be ignored.

(The author is co-founder, NestAway Technologies Pvt Ltd)