Young, and not keen on owning a house

Millennials prefer renting to buying. Here’s why. By Samantak Das

As you drive through any Indian metropolis, you are bound to come across giant billboards selling the dream of living in swanky high-rises with all modern amenities, but millennials, of late, are not too keen to buy a home.

There are several reasons for such behaviour and that includes personal preference and economic considerations.

Interestingly, with a new generation has come a shift in value and culture. Millennials are not so keen on home ownership as the previous generations. Typically, millennials or Generation Y include people born between early 80s and 2000.

Traditional yardsticks of success like marrying at a certain age, having children, buying a house and a fixed retirement do not apply to this group. Instead they are more focussed on their jobs, give themselves time to find a life partner and look for financial freedom rather than ownership of assets.

This paradigm shift in mindset has also meant that millennials shy away from long-term financial obligations which come with buying a home. Connectivity to the workplace, convenience and security are important, but owning their own home is not.

Due to the nature of their jobs, millennials seek mobility and don’t want to stick to one geography. Renting offers more flexibility and freedom of moving base when a more exciting job opportunity presents itself. Millennials also prefer staying close to business districts on rent as residential apartments there are relatively costlier to buy.

One of the considerations when buying a property is, of course, affordability. A rent of a certain property is always less than the EMI one would be paying. But when the difference between EMI and rent is not very much, there is a case for buying as unlike rent, EMIs help in building an asset. In India, due to relatively higher price, the EMI-to-rental ratio is very high.

Let us take an example of Andheri West, a posh suburban locality in Mumbai. A 2-BHK apartment would cost around ₹1.8 crore.

How it works out

Assuming a down payment of 20% (₹36 lakh), one has to take a loan of ₹1.44 crore. If we consider a tenure of 20 years and an interest rate of 9% per annum, the EMI works out to ₹132,654. The monthly rent for a similar property would be in a range of ₹30,000 to ₹40,000.

That is a pretty high EMI-to-rent ratio, greater than 3. The ratio in similar localities in other major cities would be relatively less, but still very high. Further, millennials prefer to stay near their workplace as it decreases commute time and improves quality of life, but property prices in upmarket areas are well beyond reach, making renting the only option.

JLL Research estimates the demand for rental housing in three major cities, Delhi NCR, Bengaluru and Mumbai, to grow to 4.4 million in 2021, up from 2.9 million in 2011, at a CAGR of 4.3%.

While rental housing is getting more organised, the trend among millennials has also given rise to the concept of co-living spaces.

Based on the ‘plug and play’ model, co-living helps the residents share amenities like wi-fi, phone, housekeeping, laundry, and water plus kitchen, bathroom, living areas and pantry. It’s like a home away from home.

Flexible

With property prices rising in gateway cities, co-living offers residents shorter and more flexible lease terms compared to condominiums, as well as ready-to-move-in convenience. Along with that comes the convenience of surplus benefits such as electricity, water, gas, all-inclusive with the rent. Hence, millennials are willing to pay a premium for their stay in an organised set-up as this saves them from chores like separate bill payments.

Growth in demand

Players in co-living space such as Zolostays, CoLive, Stanza Living and CoHo have operations in cities such as Delhi NCR, Bengaluru, Pune and Hyderabad. Investors have also showed interest in these startups, sensing a growth in demand. While in a traditional rental set-up, investors get a yield of around 2-3.5%, in case of co-living, the yields can almost double or even increase to 2.5-3 times in case of customised co-living spaces.

Given that demand is increasing and there is relevant supply too, co-living space is set to grow significantly in the future. ‘Generation rent’ is thus a phrase that is apt for millennials and the real estate industry needs to be well equipped to adjust to this new paradigm.

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