Explore the rise in demand for investment in co-living assets

0

*This content is brought to you by Migrating Wealth

Although cohousing may be an emerging asset class for investors, factors such as high population growth are driving demand for affordable housing solutions. Buying a home can be an out of reach expense for a student, a young worker or a growing family. It is increasingly common to rent living space with common areas – especially in areas of the world where the need for housing is high – and rentals of houses or apartments are more profitable.

This is where purpose-built co-living (co-living) is gaining popularity as it is a “community living model where residents share common spaces and services for a better quality of life. “.[1] Population growth and housing affordability are inextricably linked. In our partnership with BNTO (formerly known as Six C Pty Ltd), this was highlighted in a webinar focusing on cohabitation assets; BNTO is an Australia-based co-housing development and operating company.

Global population growth is driving housing demand

Below are some interesting 20-year population growth statistics in nine major cities around the world that have led to an increase in housing demand:[2]

This exponential population growth can be seen in comparison with the forecast statistics that the World Economic Forum published in 2016,[3] which predicted the growth of the 10 largest cities in the world by 2030.

Housing prices and incomes are a global concern

As such, there is a huge demand for housing with high population growth and a shortage of supply. This shortage is partly explained by the fact that housing prices globally have exceeded incomes in most countries. The International Monetary Fund (IMF) has a global housing watch tracker that examines developments in housing markets and provides up-to-date information and metrics to assess it.

The IMF released information in June 2021 detailing this gap between house prices and income. This is concerning because it proves that housing prices around the world are getting more expensive over time; in fact, about 50% of the world’s population cannot afford to buy a home.[4] To find housing, more and more people are turning to the rental market to meet these housing needs.

The shift from a buy-to-let mindset is gaining momentum. The cost of housing and population growth promote different ideas about residential living spaces and bring it to the fore. The emergence of the shared housing market cannot be underestimated, as the concept of shared housing and informal “paying guest” accommodation has combined to formalize a new way of life.[5]

Although co-living is only one segment of the rental housing market, it is becoming an essential part of it due to its flexibility in short and long term leases and its affordability. Co-living also brings together the benefits of community, convenience, cost savings and comfort.

Evolution of co-living

Co-living contributes to the “sharing economy” where drastic changes in consumer behavior have disrupted traditional business models such as Airbnb and Uber.[6] It is also one of the fastest growing real estate sectors in the world with over 3.4 million branded rooms in 2020.[7] This represented a value of 3.75 billion dollars (USD) in 2019.[8]

Although co-housing has a long history with co-housing, house-sharing and bespoke co-living – to fully understand these concepts, it is important to briefly examine its origins.

The history of co-living as an asset class[9]

1960:[10]

The idea of ​​co-housing originated in Denmark in 1964, when Danish architect Jan Gudmand-Hoyer started a discussion group among friends about creating a more supportive living environment. A plan has been drawn up to build 12 terraced houses around a common house and a swimming pool on the outskirts of Copenhagen. Although this plan was approved by the municipal authorities, the neighbors opposed it and none of the cohabitation buildings were built.

After Gudmand-Hoyer wrote an article that was published in the national newspaper in 1968, the idea was widely supported by over 100 families. It was after this period that co-housing became more definitive with a few housing collectives springing up in like-minded communities around Copenhagen.

1970-1980:

From this period cohabitation began to become more common in Denmark, Sweden and Norway with the idea of ​​living in a community to save on the cost of living. Cohabitation offers the appeal of private living quarters and common community spaces for meals and activities, as well as shared resident responsibilities such as childcare, cooking and cleaning. Co-housing was primarily aimed at families with small houses sharing services and common areas.

1990-2000:

With the increase in communal living spaces, co-housing began to gain popularity and spread to more of the Netherlands and Germany. This gave birth to roommate; it’s more of a family oriented generation of families who stay together to save costs and benefit from community ties. Shared tenancy is now more common, where a group of people or a couple agree to benefit from the pooling of resources and share the costs of maintaining an apartment.

2010-2020:

Communal living has now developed to offer tailor-made cohabitation, where this lifestyle seems preferable for individuals or couples. This concept has now gained influence in China, India and the United States. As of 2020, there has been a global shift in the way society plans urbanization and infrastructure and city development. As rapid population growth and high housing prices cause housing shortages, bigger issues have come into play, ranging from resource scarcity to issues of sustainable living, security and a greater focus on people. cost of living savings.

Invest in cohabitation assets

The growing popularity and future demand for flexible accommodations such as co-living environments is expected to continue. This is integral to society’s changing needs for geographic mobility in the context of remote work or a mix of working from home and traveling to the office. Co-living investments present strong returns for investors.[11]

Although the initial cost of the project is higher, it gives a higher rental income than multi-family real estate assets, assuming the exit cap rate is the same. With purpose-built co-living, an entire building can be constructed for multiple rooms for rent with common areas in between. Cohabitation may be a more affordable option for residents. The lease often provides a fully furnished living space and includes all amenities such as Wi-Fi, water, and electricity.

Co-living ownership is suitable for shared accommodation with many tenants, increasing rental yields and making it a profitable business for investors looking for higher returns. Cohabiting real estate assets can also offer passive income with steady cash flow to investors if it is an income-oriented investment.[12]

One of the reasons passive income investments are popular is that investors can earn money with minimal effort. Once the money is invested in the deal, the investment will continue for its pre-determined term. If it is an income-oriented investment, this may result in monthly or quarterly payments to the investor. This asset class offers investors a convenient option to diversify real estate investment portfolios by offering different types of assets.

Co-living as a housing option for the future

For residents who want affordable housing and a better quality of life while prioritizing shared social life experiences, cohabitation is a promising solution. Purpose-built co-living provides a tenant with a sufficient mix of spaces that cater to privacy or socialization depending on individual preferences. This blend of privacy and exclusivity appeals to high-density populations, especially where rapid population growth and housing supply are limited.

As part of an ongoing educational series, our next article will walk you through the benefits of investing in cohabitation assets with a real-life example. He will also look at the growing appeal of co-living and its role in residential real estate.

Find more Wealth Migrate content here:

Watch our webinar focused on co-living investing, where our team and sponsors analyze the high demand for this asset class.

Read our investing articles and listen to the podcasts. We cover the topics of Diversification, Structured Notes and Purpose Built Cohabitation, click here for the full list of Wealth Migrate – BizNews archives.


[1] Migration of wealth. (March 2022). ‘Property 5.0: what is co-living and why is there so much demand for this asset class?’. Retrieved from YouTube.

[2] Migration of wealth. (March 2022). ‘Property 5.0: what is co-living and why is there so much demand for this asset class?’. Retrieved from YouTube.

[3] Myers, J. (October 2016). “The 10 largest cities in the world by 2030”. Extract from the World Economic Forum.

[4] Migration of wealth. (March 2022). ‘Property 5.0: what is co-living and why is there so much demand for this asset class?’. Retrieved from YouTube.

[5] Kumar, A., and Hatti, C. (December 2019). ‘Global Coliving Report 2019: living together’. Recovered from Housemonk.

[6] Osztovits, A., Nagy., B. and Koszegi, A. et al. (2015). ‘Share or pair? Growth of the sharing economy”. Taken from PwC.

[7] Migration of wealth. (March 2022). ‘Property 5.0: what is co-living and why is there so much demand for this asset class?’. Retrieved from YouTube.

[8] Migration of wealth. (March 2022). ‘Property 5.0: what is co-living and why is there so much demand for this asset class?’. Retrieved from YouTube.

[9] Migration of wealth. (March 2022). ‘Property 5.0: what is co-living and why is there so much demand for this asset class?’. Retrieved from YouTube.

[10] Milman, D. (2022). ‘The story of cohabitation’. Excerpt from Canadian Cohabitation Network.

[11] Global Wealth Group. (2021). ‘Industry Snapshot: A Look at Cohabitation in Australia’. Excerpt from Wealth Migrate.

[12] Global Wealth Group. (2021). ‘Industry Snapshot: A Look at Cohabitation in Australia’. Excerpt from Wealth Migrate.

(Visited 129 times, 129 visits today)

Share.

Comments are closed.