Build to Rent (BTR) Vs Traditional Renting: Addressing India's Housing Challenges

Renuka Prasad

| 17-01-2024

Build to Rent (BTR) Vs Traditional Renting: Addressing India's Housing Challenges

1) Introduction

2) Challenges

 a) National Challenges

 b) Sustainability Goals

 c) Financial Challenges

3) Need of Build-to-Rent (BTR)

 a) Unprecedented Urbanization:

 b) Economic Powerhouses in Cities

 c) Growth of the Middle-Class Population:

 d) Urban GDP Contribution:

4) BTR is a rental model designed to tackle these challenges effectively:

 a) Information gap

 b) Purpose-Driven Products

 c) Sustainability

5) Traditional Renting Pros

6) Traditional Renting Cons

7) Build-to-Rent (BTR) Pros

8) Build-to-Rent (BTR) Cons

9) Conclusion

1. Introduction

Rental housing in India has a rich history, with people sharing their spaces for profit. However, a paradigm shift is occurring with the emergence of build-to-rent (BTR) housing, where properties are purposefully constructed for residential renting, aligning with renters' preferences.

2. Challenges

a) National Challenges

Urbanization: India is experiencing massive urbanization, according to Google by 2040, 40.76% of the country's population is expected to reside in urban areas. with millions of people migrating to major cities. By 2030, it's projected that Indian cities will house 600 million people, leading to a surge in housing demand.

Slow Infrastructure: India is struggling to keep up with the housing demand. The construction rate falls short of the estimated requirement, and insufficient investment in urban infrastructure exacerbates the situation.

Mismatched Preferences: The new age of renters, primarily millennials and Gen Z, prioritize factors like proximity to work, convenience, and security over property ownership. This shift in preference poses challenges to traditional rental models.

b) Sustainability Goals

Carbon Emissions: The real estate sector contributes significantly to carbon emissions, particularly in urban areas. India faces severe environmental challenges, including water scarcity and air pollution, impacting the habitability of cities.

Waste Management: India generates a substantial amount of construction and demolition waste with low recycling rates. Sustainable practices are crucial for long-term housing solutions.

c) Financial Challenges

High Investment and Maintenance: Real estate investment in India requires substantial investments, coupled with ongoing maintenance costs. This financial burden discourages both investors and landlords.

Low Returns: Indian residential rental yields are among the lowest globally, making traditional rental real estate less attractive to investors.

3. Need for Build-to-Rent (BTR)

a) Unprecedented Urbanization
India's rapid urbanization is nothing short of remarkable. With 25–30 people migrating to major cities every minute, the nation is undergoing the largest human migration in the world.

This trend signifies the increasing demand for urban housing and the need for innovative solutions to accommodate this vast urban population.

b) Economic Powerhouses in Cities
Indian cities, despite occupying only 3% of the nation's land, host one-third of the population and contribute to 2/3 of the nation's economic output.

The economic significance of urban areas highlights the importance of providing comfortable and sustainable housing solutions to support continued economic growth.

c) Growth of the Middle-Class Population 
The Indian middle-class population is expected to double by 2030, with a growth rate of 8.3%. Their spending share is projected to increase to 80%, amounting to an additional $1 trillion in consumer spending by 2030.

4. BTR is a rental model designed to tackle these challenges effectively

a) Information Gap
BTR introduces organization and efficiency into the market, ensuring that customer preferences are met accurately. Builders can make informed decisions about property sizes and demographics, increasing the chances of occupancy.

b) Purpose-Driven Products
BTR offers purpose-driven housing that optimizes the value chain, enhances predictability, maintainability, and product-tenant fit. This model can significantly increase rental yields, reduce maintenance costs, and improve the longevity and sustainability of properties.

c) Sustainability
BTR models focus on long-term property management, aligning with sustainability goals. This approach can help address issues like water scarcity by ensuring properties remain sustainable over time.

Certainly! Let's delve deeper into the accurate differences, pros, and cons of traditional renting and build-to-rent (BTR) in India.

5.Traditional Renting Pros

Lower Entry Costs: For renters, traditional renting often requires lower initial financial commitments, such as security deposits, compared to buying a property or BTR.

Diverse options: Traditional rentals offer a wide range of properties, from individual houses to apartments, catering to various preferences.

Freedom to Choose: Renters have the flexibility to choose from existing properties in different locations, allowing them to find a place that suits their needs.

6. Traditional Renting Cons

Lack of Customization: Traditional rental properties are often not customized to the preferences of renters, leading to a mismatch between renters' expectations and the property itself.

Maintenance Responsibility: Often, renters are responsible for property maintenance, which can be burdensome and costly.

Information Gap: Traditional renting suffers from information gaps. Renters may lack complete knowledge of property conditions, and landlords may not fully understand renters' needs and preferences.

7. Build-to-Rent (BTR) Pros

Customization: BTR properties are purposefully designed to meet the specific preferences of renters, ensuring a better fit between the property and the tenant's lifestyle.

Predictable Costs: BTR often includes maintenance services, reducing the burden on renters. They have a clear understanding of costs, making budgeting easier.

Sustainability: BTR properties are built with sustainability in mind, aligning with environmental goals and long-term habitability.

Information Symmetry: BTR introduces organization and efficiency into the rental market, ensuring that builders and operators have a clear understanding of renter preferences and needs.

Higher Rental Yields: Investors in BTR can potentially achieve higher rental yields, making it an attractive option compared to traditional rentals.

8. Build-to-Rent (BTR) Cons

Market Maturity: BTR is a relatively new concept in India, and the market is still evolving. There may be limited options and operators in certain areas.

Kots is currently operating in Buit to rent Model.

9. Conclusion

In summary, the key differences between traditional renting and BTR in India lie in customization, cost structure, and sustainability. BTR offers tailored housing solutions with predictable costs and a focus on long-term sustainability, while traditional renting provides greater location and property diversity but lacks the same level of customization and may involve higher maintenance responsibilities for tenants. Ultimately, the choice between traditional renting and BTR depends on individual preferences, financial capacity, and the specific needs of renters or investors.


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