India's student housing market expected to expand as demand rises

India’s student housing market is set to grow as demand rises in education hubs where millions of young people need hostel and rental accommodation, according to experts.

 

“According to various market reports, the Indian student housing market is estimated to reach approximately $780.5 million by 2030 with a CAGR (compound annual growth rate) of 6.6 per cent from 2025 onwards,” said Santhosh Kumar, vice-chairman, Anarock Group, a real estate consultancy.

 

“I expect student housing to grow by 20-30 per cent annually, if not more, for at least the next decade,” said Sunny Garg, co-founder and chief executive officer (CEO) of Crib, a property technology platform.

 

Student enrolment in higher education was 43.3 million in 2021-22, increasing 26.5 per cent from 34.2 million in 2014-15, according to data from the Ministry of Education. India aims to enroll half a million foreign students by 2047, according to NITI Aayog, the central government’s policy think tank.

 

More than 75 per cent of students live outside their hometowns, according to Kumar.

 

“The current on-campus hostel facilities cannot accommodate more than 20 per cent of the total student population. Consequently, a substantial portion of students rely on off-campus accommodations,” said Anshuman Magazine, chairman and CEO - India, South-East Asia, Middle East & Africa, CBRE, a real estate consultancy.

 

Explaining the shortage, Vaibhav Khanna, CEO and co-founder of student housing operator EzStays, said: “Colleges do not see student housing as a great return on investment (compared to building additional educational infrastructure) and therefore do not create infrastructure for their entire perceived demand.” He believes the trend is likely to change as colleges realise that housing is a deciding factor for students while choosing a college.

 

Garg, of Crib, said: “Managing and operating hostels is not the core business of educational institutions, resulting in a limited number of beds that often fall far short of the student population, especially in government-run colleges. For example, in Delhi University, campus hostels have capacity for only about 10 per cent of the total student body.”

 

Student housing operators, as a business strategy, often collaborate with educational institutions and may even manage on-campus student housing.

 

India’s vast private coaching industry spreads across Tier-II cities like Kota, Dehradun, Patna, Noida/Greater Noida, Indore, Jaipur, Nagpur and Visakhapatnam, offering opportunities for student housing operators.

 

The operators lease buildings, including their premises, and provide students with security, food, transportation, Wi-Fi, laundry and housekeeping. Some provide gyms, TV rooms, study rooms and programmes such as mentorship, recreational events, and festival and birthday celebrations.

 

“Students have to sign an agreement for the entire academic session, which is essentially to take away all the hassle related to housing, food, and transport so they can concentrate on pursuing their education career,” said Khanna.

 

Student housing as asset class

 

Though in its initial growth phase, student housing can be an attractive asset class amid higher and steady rental returns ranging from 8 per cent to 18 per cent per annum, compared to traditional rental yields of around 2 per cent to 3 per cent.

 

According to a report by JLL, when student housing markets in the United States and the United Kingdom were taking shape in 2002-2003, the yield rates were between 8.5 per cent and 10 per cent. Rates moderated to 4.5-6 per cent by 2016. Yield rates in the Australian student housing market were around 7.7 per cent in 2013 and moderated to 7 per cent by 2016, as the market matured, said the report by the global real estate services firm.

 

“Considering the pricing at which people got into student housing in the last 4-5 years, the returns they are getting on their market price investment of the land and the cost of construction are anywhere between 12 per cent to 18 per cent. This does not include any capital appreciation; capital appreciation is only secondary,” said Khanna.

 

From a capital perspective, land prices have gone up in five years. “But that is because of the disproportionate returns that were made available to student housing as an asset class,” he added.

 

Industry experts believe that the location is the key to maintaining occupancy levels. That is also why the operators seek growth, which is often backed by business-to-business agreements with institutions.

 

Hurdles on the way

 

Student housing has challenges like a lack of organised players, project financing and liability risk in case of mishaps, forcing investors to approach cautiously.

 

“Demand is there but the financing part has to evolve. The financing to arrive in asset classes like that is still not well defined,” said Kaustuv Roy, managing director, business solutions, Savills India. “The chances are that more than construction funding, possibly, there can be more play on the private equity side. Once private equity gets in, the institutional construction funding will start. Private equity will first have to put in money over there in a bigger way.”

 

Developers get lucrative margins in premium residential real estate and may not immediately prioritise student housing, a relatively new alternative asset class, according to stakeholders.

 

Vimal Nadar, senior director and head of research at Colliers India, believes that providing tax incentives to developers and encouraging a public-private partnership mode for development can attract more investors in the segment.

   

Average student housing rents across Indian cities
City	Rent per month (INR)
New Delhi	18,000-20,000
Dehradun	15,000-18,000
Kota	10,000-12,000
Greater Noida	10,000-12,000
Source: EzStays