Start-ups are helping landlords shed the distrust, while offering renters a slew of services

Won’t let out your house for fear of dishonourable tenants? Or, are you searching for a house on rent but can’t find one on your terms? An emerging trend is helping the twain meet.

A small group of start-ups, namely NestAway, Grabhouse, Homigo, SquarePlums and FellaHomes is ushering in change in this business, ensuring steady supply of quality rented houses at affordable prices to singles and families who flock to urban centres for study or work.

They are also attempting to turn housing into a liquid asset class to provide better returns for investors. They call themselves asset management firms or home rental firms and take over the maintenance of the house, guarantee rentals, and provide easier terms and conditions for tenants.

An estimated four million houses under lock and key for various reasons are being gradually brought into the rental market. This has also ensured steady supply of accommodation to tenants closer to their workplaces.

Investors see potential

This segment has attracted the attention of international private equity investors such as Tiger Global, Google Capital, SoftBank, NewsCorp as well as domestic investors such as Ratan Tata’s RNT Associates and SAIF Partners, who have invested several million dollars.

For example, NestAway has raised $90 million in two rounds of funding from investors including Mr. Tata and has grown to a rental billing of ₹350 crore in three years. It now manages 15,000 houses with 30,000 tenants in nine cities.

In the residential renting space, the penetration level of these firms is not yet 0.5%, leaving scope for vast growth. These companies operate on a 12.5% monthly commission on rent and the tenant or the owner need not pay any brokerage which, traditionally, would have worked out to about 16% of the monthly rent. A decade back, online housing classifieds emerged, enabling easier search for houses. Traditional classified portals provide a listing facility to owners and discovery of homes to tenants.

In the emerging environment, the new players provide a much higher degree of fulfilment and convenience to both tenants and landlords. As full-stack rental providers, these firms have a relationship with the owner and tenant beyond the rental transaction.

“We can be truly called an asset management company,” said Amarendra Sahu, co founder & CEO, NestAway Technologies. He said though housing was the largest asset class, there was no structured mechanism to manage this asset efficiently.

‘Liquidity for owners’

“It should operate like the stock market and provide easy liquidity to investors. We want more players like us to enter into this market and grow it. The opportunities are immense,” he said. For owners, these firms provide an end-to-end property management solution starting from helping to renovate the property, promoting it, showing it to prospective tenants, managing the keys & agreements, police verification, rent collection till moving out. For tenants, they provide real-time availability of homes, after-sales home services such as plumbing and electrical services, often demanding only two months’ security deposit as against the traditional six or ten months’ and even forego brokerage fees. They also provide furnished homes.

Today, many people stay away from leasing out their house in fear of rent default, damage to property and hassles related to pre-renting renovation, showing the house to prospects, background checks, police verification, agreement execution, key duplication and home repair.

The paucity of professional brokers has also added to the concern. These problems compound for NRIs who are unable to visit often. At times, they give keys to brokers only to later realise that they have been short-changed. Living in another continent makes it difficult for them to manage routine home service and structural issues.

Often, landlords lack the expertise to determine fair values for rentals and depend on brokers. Low rental returns is another deterrent.

Yield lower in India

In India, rental yield of 2%-3% per annum is the norm while the fixed deposit rate hovers over 6%. In the U.S., though , rental yield is 5% a year while deposit rate is 1%. So, most Indians buy homes for capital appreciation rather than rental yield.

According to the 2011 census data, 3.2 million homes were vacant in India’s top 20 cities, which translates to 11% of the total available inventory. Extrapolating to 2018, there would be 4 million vacant homes in these cities.

Amit Wadhwani, director, Sai Estate Consultants said, “Migration within the country has nearly doubled and this has resulted in exponential growth of rental accommodation in metros. Currently start-ups with the mix of technology are disrupting the whole industry but customers are still not satisfied.”

New initiatives have helped put landlords at ease and bring out more vacant homes into the rental market, These include an arbitration clause in the agreement which would lead to faster resolution of disputes and the provision of a ₹1-crore house insurance to handle issues concerning damage to property. A rental default guarantee is also provided. Another issue being addressed is that of distrust towards singles and the discrimination they face.

For tenants, the risk of getting stuck in a house bound by a bad agreement is nullified as some firms offer a free three-day lookup period wherein the tenant can walk away from the deal free of cost. If they decide to stay on, the headaches of chasing the owner for repair work does not arise as it becomes the responsibility of the home rental company.

Some firms also offer services such as utility bill payments and renting out of furniture to tenants.

Samir Jasuja, MD, PropEquity said, “This segment has a future. But I doubt it would be as disruptive as Ola or Uber considering the challenges this segment faces.”

“As disruption is underway, the desired traction has not happened because of inherent challenges. It is a retail-oriented business and hence an offline service is needed. Automation is limited to searches. Physical service must support clients.”

Technology has proven to be the most disruptive influence in Indian real estate, said Anuj Puri, chairman, Anarock Property Consultants. Commending home rental apps for preventing discrimination by landlords and housing societies on the basis of tenant’s religion, caste, dietary preferences, gender and relationship status, he said Internet-based services were serving an urgent social need.

However, Pankaj Kapur, MD, Liases Foras, while acknowledging the sector has growth potential, said, “Imposing non-discriminatory clauses in agreements will face opposition and discomfort. This may create much a bigger problem because society by nature is homogeneous and interfering in any set order may backfire.”