The world’s biggest student market is preparing to upgrade to international standards of accommodation.
India looks as if it will take a decade to get there but the opportunities for universities, students, investors and developers are enormous: with 34 million students, the sub-continent has an academic community which is nearly the size of the population of Canada.
At first glance, the present situation might look unpromising. “It’s completely unorganized as a sector,” says JLL’s Suvishesh Valsan, Associate Director in the Strategic Consulting team. “The market is nascent: there are a handful of companies involved.” But in 2017 those companies have recognized the sector’s potential and are making significant progress. “They are building now, with some student housing projects due on line in very soon,” continues Valsan. “The companies want to ramp up their output. It is a matter of how fast they can do it. Funding is one of the constraints.”
The statistics speak for themselves regarding future needs. The top ten of India’s 29 states, ranked in terms of student numbers, have an unmet accommodation demand of between 30 and 60 percent, according to a JLL report.
Nearly three-quarters of students are enrolled at universities in these states. Mumbai and other parts of Maharashtra state, for instance, draw in undergraduates from all over the country and have a shortfall in custom-built housing for them of 62 per cent of the student population.
Excluding local students who can study from the family home, there are nearly 1 million who currently rely on the very basic accommodation currently on offer. Similarly, in Bangalore and other parts of Karnataka state, there is an unmet demand of about 400,000 beds.
The education hub of Southeast Asia
Prime Minister Narendra Modi’s administration has a vision for change but has yet to work through the details to make it happen. “The government is planning to make India an education hub for South East Asia,” says Valsan. “Students come to study in India from neighboring countries where the level of educational facilities is not high.” And this is further adding to the demand for quality student accommodation.
So what lessons can India learn from the established student accommodation markets such as the UK and the U.S? “There is a tremendous opportunity in India,” says JLL’s UK Chair of Alternatives Philip Hillman and leader of its Student Housing and Higher Education Team.
“We will see a much more rapid development of student housing in the emerging markets than there was in the UK and the US because of the experience that has already been gathered there.”
Tax breaks have been offered in the west in order to draw in investment — in return for developers meeting very precise standards. And universities have benefitted in the US, UK and Australia as specialist developers and operators have taken on responsibility for managing student residences, leaving university staff free to concentrate on the educational side.
Rental yields to tempt investors
India nevertheless comes with its own challenges. “The big challenges in India are scale, transparency and the price of land,” says Hillman. “The biggest issue is transparency, particularly as regards title. Regarding scale, it’s got to be at the level of several thousand beds before international investors come in.”
The rising price of land means that developers are avoiding Mumbai and Delhi. Instead, they have focused on cities including Hyderabad, Indore and Kota. Developers expect average rental yields of 15 to 18 percent if occupancy rates behave as expected and follow the lead of the UK at 95 percent and the U.S. at 96 percent.
And when it does start to evolve, the Indian market is likely to follow the western models in offering a range of accommodation options and standards. And the funding formula will be key.
As Hillman explains: “The big question is whether Indian universities are going to offer top quality accommodation. To do that, they need to enter into partnerships with the private sector. And the private sector will want to lease, probably for 20 years or longer. And then, when they are confident about the demand and their pricing, entrepreneurial developers will do ‘direct let’ deals. The UK and U.S. evolved this way, and ‘direct let’ is now the most common arrangement.”
Catering for today’s students
For now, however, the focus remains very much on creating the facilities to meet the needs of modern students; both in terms of accommodation and other amenities such as libraries and sports facilities. Ensuring that the new buildings are well maintained and kept clean will be another priority. “The wellbeing of students is key,” says Valsan. “And with 47 percent of students are female, it is important they have safe and comfortable places to live in.”
Creating a supply of attractive student housing has the potential to transform the world’s second most populous country — encouraging school leavers from the country to move to cities and helping India develop into a mature economy.
In the long-term investors stand to benefit as much as students. Hillman says: “Within five years we will see some substantial portfolios in India. That will be the trend for the next five to ten years. Then we will see consolidation. About ten years from now there will be significant levels of trading going on.”