The many challenges in residential real estate

In the early 2000s, a general euphoria engulfed the nation, especially the youth, induced by bright new opportunities lying ahead of them. Real estate dreams becoming a reality was a huge part of that giddiness.

Rapid urbanisation led to companies setting up their offices and development centres in metros that, in turn, attracted talent from all over the country. This led to a steep capital appreciation of residential assets, making everyone invest more and more in this sector. However, euphoria is inevitably followed by gloom.

The pall over this growth has been growing over the last five years — demonetisation, RERA, GST, and now COVID-19, have been big shocks that have significantly altered the residential real estate landscape.

About $150 billion worth financial distress looms the Indian residential real estate sector due to the unused, unsold inventory, and ongoing projects stuck at various stages. According to a report by Knight and Frank, the Indian residential real estate rental market stands at $13.5 billion while the shared residential rental market is worth $6.5 billion.

However, massive challenges like a mismatch in supply and demand, subdued demand, and liquidity crunch have brought growth to a standstill. The pandemic, too, has precipitated and compounded the challenges of the residential real estate space. It will lead to a dip of 46 percent in the launch of new residential projects in urban India.

Moreover, a significant inefficiency in the residential real estate is also causing dire stress to all stakeholders, including investors, developers, and home-owners. This needs to be addressed on a war footing for the larger good of the residential real estate market, and the economy at-large.

The good news is, there are newer solutions and business models that will go a long way in addressing these challenges.

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Applying a service layer on top of the residential asset

The current rental yields in residential real estate are as low as one to three percent, making it unattractive from an investment perspective. In the past, capital appreciation of the residential real estate was high enough for owners and investors to ignore rental yields, but not in the current circumstances and foreseeable future.

Besides, managing properties and rentals has never been easy. While it is relatively easy to buy a property, the real devil lies in post buying, in terms of managing the asset and rentals to get returns out of the same, and subsequently servicing EMIs.

The post-buy expenditure in maintaining the assets may stretch anywhere between 10 and 20 percent of the rental earnings, which has brought the focus back on rental yield.

The solution comes in the form of professional rental and property management companies that are relatively a new paradigm in India. These companies will play a very critical role in the future in driving this transformation.

It will no longer just be about the asset. The real value of it will unfold when customer service wrapper, focussed on both tenant and owners, is added to the residential asset. And, the most critical enabler of the service wrapper is technology — to ensure efficiency and consistency in implementing the business process.

Moreover in the US and Europe, almost 90 percent of residential properties are managed by property and rental management companies, accounting for as low as less than 10 percent in India.

Technology evolution and adoption in residential real estate

Technology is taking a centre stage in all business processes associated with residential real estate property and rental management. It is also ensuring owners, tenants, and service providers leverage it efficiently to communicate, deliver services, and transact.

And, it has gone through various stages of progression.

Marketplaces for discovery and finding homes

Over the years, several developers created marketplaces with the details of ongoing and completed projects and associated contents, enabling online selling. However, their biggest challenge was to monetise this technology with ad revenue.

Although, with Google and Facebook, there were more real-time, faster search results available with laser-guided ad solutions. Secondly, these marketplaces were unable to validate the quality and accurateness of the data.

Property management marketplaces for managing homes

Home-centric property management services platforms created marketplaces for home-owners to provide them with their maintenance services. At present, these platforms face severe challenges from local players, including plumbers, carpenters, etc., who are just a call away from the owner’s apartments. Of course, these marketplaces did not create any intelligence for owners on their asset conditions, etc. — an unaddressed space left behind.

Community management platforms: apartment complex management and facility management

With the weak performances of several residential welfare associations (RWAs), several community management platforms emerged to facilitate the service by controlling real estate processes around visitor access management, common area maintenance, apartment complex communications, etc. These platforms, to a large extent, created a strong ecosystem for apartment complexes to run smoothly.

What was missed here was the interest of an individual home-owner, who not only wanted to be aligned to the society’s processes and activities, but wanted a professional rental and management solution, higher rental yields, and continuous cash flow.

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Rise of rental and property management prop-tech platforms

For customers, the need of the hour is a customer service-oriented platform that focuses on individual tenant and owner, making the renting and living experience better. For property and rental management firms, leveraging technology is imperative if they want to scale their operations.

These rental and property management proptech companies work on tenant and owner engagement smoothly by consuming a modern asset management process built around data analytics, artificial intelligence, and machine learning.

The platform’s centricity around tenant delight has led to digitising end-to-end rental and property management processes. The entire tenant, asset, and owner lifecycle, as well as accounting, and the financial process, must be automated.

The platform brings both owners and tenants under the same umbrella to draw intelligence from each other’s actions. At present, tenants look forward to leveraging technologies to discover properties, sign digital agreements, and pay rent online. They also want to avoid engagement with the owners. With multi-city real estate investment owners, who are physically not residing on the property, prefer to manage tenants digitally.

In addition to having a robust rental and property management ERP, several use cases are leveraging AI and ML, which provides the key differentiation, such as:

Identifying demand hotspots – This includes identifying micro-markets and the right price points, where demand is high, depending on work, live, and play parameters.

Judging assets based on the service requests – Good assets have higher retention and offer higher rental yields. Based on data, it is easy to predict the expected rental yield of the asset.

Categorising assets – Based on data points, one can assess the model, tenant type that will help increase rental yields for the assets.

Predicting exits – Based on consumer behaviour, looking at patterns and activities on social media, service providers can predict the stability of a tenant.

The 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 customer service wrapper, focused on both the tenant and the residential asset.

Without any doubt, technology will be one of the biggest differentiators in the residential real estate sector. While on one hand, the expectation will continue to be for proptech solutions to solve all business processes associated with rental and property management, however, winners will go a step beyond by leveraging SaaS, AI, and ML to deliver efficient business outcomes.