Credit: Leungchopan / Envato ElementsRental & Property Management Companies
They are key to driving efficiency in Residential RE
Real estate industry in India is expected to grow five-fold to $1 trillion by 2030 and a significant percentage of this is Residential Real Estate. This is being fuelled by the Prime Minister's vision of 'Housing for All by 2022'.About 11.2 million houses have been sanctioned and five million have already been allotted to beneficiaries. In the last few years 2 critical legislative bills were passed which are game changers. RERA (Real Estate Regulatory Act) was passed to protect the home owner’s interest and instil financial and operational discipline by Developers. This year Model Tenancy Act was introduced to protect the interest of Home Owners and Tenants alike.
Challenges in the Residential Real Estate
The larger question is, what is holding Indian Residential Real Estate back? The biggest challenge facing this market are the idle, ready and unsold residential units and ongoing projects stuck at various stages of the development cycle, which accounts for $150 Billion of capital that is stuck. There are 0.46 M properties valued at $50 B that are ready and unsold (Ref- JLL, 2020) and another 0.95 M properties worth $110 B with 41 months of inventory that are stuck in various stages of the project cycle across top 8 cities in India– (Ref Liases Foras (2019), RBI).
On top of this, there are 11 Million vacant properties in urban India (Ref - Live Mint, 2019). Massive challenges like, a mismatch in supply and demand, subdued demand and liquidity crunch have brought growth to a standstill; leading to financial distress among Investors, Developers and Home Owners.
The need of the hour is to address the above challenges on priority ,if we want to drive efficiency in Residential RE and want the economy to flourish. The solution lies in converting them to revenue generating assets. This can be done by creating a tech based service layer that sits in between supply of assets and demand coming from various demographics.
Residential Real Estate Rental is a $13.5 B (Ref – Knight & Frank – 2019) market with the shared residential rental market at $6.5 B (Ref – JLL -2019). The good news is that there are new solutions and business models that will go a long way in addressing these challenges.
With this comes the emergence of professional rental and property management companies in India. Designated real estate managers use technological aid to streamline property management and bridge the gap between rental property availability and demand. From managing the tenant-related matters (rentals) to property management (maintenance, vacancies, etc.), they cater to a host of essential management services.
This article outlines the manifestation, role, and importance of professional rental and property management companies in the country.
Evolution of Professional Residential Property Management Industry in India
Capital appreciation and an increased rental income in the last few decades have significantly heightened the investment rates in the industry. Investors can expect about 6-8% rental yields from affordable properties and 2-3% for ultra-luxury properties. With such attractive rates, NRIs and local investors are motivated to finance the rental realty sector.
As a result, India’s residential rental property market is valued at over $20 billion and is constantly rising. Besides, the Indian real estate sector is only second to the agricultural sector in size, projected to reach $1 trillion by 2030.
On the other hand, the gap between supply and demand in rental properties still prevails. The current shortage in housing units sums up to 10 million units, which is likely to reach 25 million units by 2030. And though acts like RERA and the Model Tenancy Act have been introduced to structure the sector, professional service providers can ensure correct implementation of the provisions.
The market boom and the expanding disproportion have made way for a host of professional rental and property management companies.
Why Are Rental & Property Management Companies Required?
Rental and property management companies undertake complete responsibility for a property for the entire duration of the contract period which can typically range from 1 to 5 years. From ensuring stability in the industry to meeting the requirements of the tenants and the owners, these professionals hold immense importance. Bridging the gap between property demand and supply is one of the primary needs of the hour. Professional companies cater to this problem through a well-structured, digital system. To prevent the properties from lying vacant, property & rental management companies act quickly.
Finding Tenants
Besides ensuring smooth management of property, the companies also pay adequate attention to rental management. They run thorough background verification checks on prospective tenants. This includes checking for police records, rental and employment history to confirm their renting intentions.
Asset Management
Conducting general management practices through digital marketing portals ensures secure information storage and eases management. Professional rental and property management companies are especially a boon to Non-resident Indians. From managing maintenance, documentation, and tax payments to bringing in reliable tenants; they offer a wide-range of services. Managing the Asset properly is key to higher capital appreciation of the asset.
From point based services to Lifecycle services
Before hiring the services of an authentic rental and property management company, make sure to check the services offered thoroughly. The following points sketch out the areas of expertise of a professional estate management company:
- Undertaking complete maintenance and restoration responsibilities, be it big or small.
- Ensuring accurate documentation, including the lease contract, registration certificates, and other relevant documents.
- Enhancing property value by following the latest upliftment and marketing practices to attract prospects.
- Assuring that both parties follow rental agreement rules & ensure that the property is well maintained by conducting frequent audits & taking care of issues which are found in these audits.
- Overseeing the payments, including taxes, utilities, and other essential overheads, on behalf of the owner.
In a nutshell, a reliable rental and property management company will take up all the nitty-gritty of handling a property and its lease matters.
Uninterrupted Rentals and higher rental yield
Lastly they ensure that home owners get higher rentals and uninterrupted cash flow. This is crucial for the home owners to repay loans and pay for other capital expenditure associated with the property. By 2025, the Indian real estate sector will contribute a whopping 13% to the GDP. Effective rental and property management will ensure the country benefits from the economic returns as much as the property owners and tenants.
Escalating Demand of Rental and Property Management Companies
As a result of governmental rules and tax cuts, metro cities are witnessing a significant rise in the real estate sector. Besides, the Reserve Bank of India surprised the industry by cutting the repo rate down to 6% from the initial 6.25%. Consequently, owners are looking forward to selling, and cheaper loans are attracting interested investors.
Needless to say, the large-scale migration towards cities like Delhi, Chennai, Mumbai, and Bangalore is further boosting the country's rental market.
As per a JLL report, the real estate sector witnessed an investment of a whopping $2.7 billion in the first six months of 2021. With the visible rise, the demand for professional management companies is bound to sky-rocket.
“It is not only pent-up demand that will push growth, but the country is going through a structural transformation in housing demand," says Deepak Parekh, non-executive chairman of HDFC.
The Rise of Rental & Property Management PropTech Platforms
The emergence of rental and property management companies in India has made way for a multitude of tech platforms in the domain. The firms are leveraging the power of technology to enhance their performance.
- Professional companies use tech-based portals to identify demand hotspots, ensuring a profitable return to the investors.
- Artificial intelligence and machine learning are getting used for evaluating assets to project the rental yield.
- Once the experts have evaluated, they categorize assets to approach specific tenant types for higher yield.
- Real estate management teams predict consumer behaviour for verifying tenant reliability.
Tech-based property and rental management services is the need of the hour for tenants and homeowners, and following this approach significantly uplifts the value of the property. Though the rate of investments in the real estate segment has been mounting, it requires a robust management system. Even the government-passed acts require professional implementation for achieving success.
“Future of Residential Real Estate will no longer just be about the asset. The real value of the asset will unfold when you apply a technology based service wrapper which is focused on both - the tenants and the residential asset. Without any doubt, technology will be one of the biggest differentiator in Residential Real Estate. “
On one hand, the expectation will continue to be for Prop-Tech solutions to solve all business processes associated with Rental and Property Management. However winners will go a step beyond by leveraging SaaS, AI, ML to deliver efficient business outcomes.
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+About the Author
Prabhat Kumar Tiwary is a Stanford Business Graduate and is currently the CEO and Founder of YourOwnROOM which is a residential real estate prop-tech rental and property management company with 0.5 M sqft. of Residential assets under management across Bangalore and Pune in India
