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September 18, 2017

Student housing is fast becoming recognized as an asset class with tremendous potential in India with around 34 million students currently in the higher education space.

And, according to the latest JLL report, student housing investors are being met with a vast opportunity as the top ten states in India, in terms of student numbers, have an unmet accommodation demand of between 30 and 60 percent.

“The market is nascent,” says Suvishesh Valsan, from JLL’s Strategic Consulting team. “There are a handful of companies involved and they want to ramp up their output – it is just a matter of how fast they can do it. Funding is one of the constraints.”

Noeleen Goh, from JLL’s Capital Markets team in Asia Pacific agrees that there’s much room for expansion in India’s student housing market. “This sector is just starting to grow in India and it has already attracted the attention of developers. More product needs to enter the market to meet the demand and this asset class has the potential to offer returns which are much higher than office and retail assets,” she says.

JLL estimates that student housing in India offers a rental yield of around 15 to 18 percent compared to the retail and commercial sector which typically varies from 9 to 11 percent. This figure is also significantly higher than the six and seven percent yield seen in the more developed student housing markets of the United States and Australia respectively.

Keen students, big market
Indian government has started to actively encouraging more student enrollment, aiming for a total enrollment of around 30 percent by 2020 and increasing the country’s student population to 40 million from its current 34 million. “It is also planning to make India an education hub for South Asia,” says Valsan. “Students come to study in India from neighboring countries where the level of educational facilities is not as high.”

Developers in India are naturally eager capitalize on this push towards tertiary educations and student housing capacity is set to increase by almost 100 percent annually for the next four years, given the yield and the continuing high and unmet demand.

Goh believes that these developers could partner with educational institutions in a “Build-Own-Operate-Transfer’ model”. “Developers provide the capital and development expertise while educational institutions provide the land and commit a minimum number of students to the student hostel development,” says Goh. “An experienced operator or the developer themselves will then be brought in to manage the operations of the hostel under a long term management contract. Developers will either collect all the fees and bear the associated expenses or share the revenue and associated costs) with the educational institutions. It depends on contractual arrangement. After a fixed number of years, the real estate will be transferred back to the educational institutions at no considerations.”

Goh explains that this structure will likely form the trajectory of the Indian student housing market in the near to medium term as the fledgling nature of the sector is unlikely to attract institutional investors who tend to prefer portfolio deals to attain scale from the get-go.

“The sector is still young but promising for investors to partake in due to the potential for scale.”

Click here to read about whether India’s real estate can maintain its momentum?

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Noeleen Goh

JLL Capital Markets, Asia Pacific

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