Providing student housing would seem at first glance to be an odd choice as a wealth-building option for high networth individuals. When Karvy Private Wealth Management CEO, Abhijit Bhave, broached it to his company’s clients, he was probably met with some scepticism.
After all, most students entering professional courses pay a bomb for the course itself — with the tuition fee and the capitation fee/donation frequently draining out the resources of their parents.
Their stay arrangements during the four-/five-year course is seldom seen as warranting much attention. More often, a hostel accommodation at the college is taken for granted. But that may be changing and fast.
As the demand for higher education increases, colleges have been mushrooming across the country, often in a cluster or a hub, across places such as Noida, Indore, Jaipur, Pune, Bengaluru, Chennai, Coimbatore and Lucknow, says Abhijit.
About four million students have gone in for higher education in the past four years, he says.
There is increasing student mobility across States as they migrate to different places in search of better education and the numbers are placing a strain on the limited facilities that are available on campuses or those available outside as paying guest accommodation. The rooms are not always adequate or well-maintained — and this is leading to higher demand for improved facilities.
That gap provides an opportunity for service providers and investors to enter the student housing market. This happens both through the B2B model, wherein a long-term contract is entered into with the institutes for managing their residential facilities, as well as a B2C model, where facilities are leased to students, typically off campus.
The global market for this asset class, Abhijit said, is estimated to be $200 billion. The US has about 2.5 million beds (built-up space) while the UK has about 0.5 million beds with average monthly room rent of about $560.
According to him, the US and UK student housing real estate investment trusts (REITs) outperformed all other REIT indices by 19 per cent and 16 per cent, respectively.
India is still a fraction of that market now but is expected to grow significantly in the next decade. Similar facilities are being built and financed by high networth investors through alternate investment funds.
Karvy and Landmark Capital group have a joint venture for a ₹250-crore fund (with a greenshoe option of another ₹250 crore) to invest in such opportunities, Abhijit said.
The rental yields are in the region of 10 per cent, says Abhijit. Indicatively, a three-bedroom flat in a premium locality in the metros offers a 2 per cent annual rental yield.