Startups and?rent?are two words that are often associated with the city of?Bengaluru, right? But two techies have combined these two terms to build a startup that offers?rent as a service. The brainchild of two techies from Bengaluru, Vijeth Reddy and Sangeetha Holiyachi, the startup Kots?addresses rental housing from a demand perspective.
"Kots is actually a noun, and it is what the student accommodation I lived in France was called. I wanted to replicate the experience I had there," said CEO and co-founder Vijeth Reddy.
Vijeth Reddy and Sangeetha Holiyachi took notice of the visible lack of insights into the?renting?market for new-age tenants. The duo found that the younger pool of tenants were particular about their spaces and preferred greenery and light over a big kitchen, a balcony, and free space over lavish furniture¡ªthis the local landlords in the market did not understand. Targeting a very niche customer pool, Reddy and Holiyachi brought to life the idea of Kots.
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Kots is a digital consumer brand?offering urban rental housing for the younger population?of the country, using the built-to-rent?model to address these issues in the?rental?market and bridge the gap between tenant and landlord. It offers studio flats, 1BHK, and 2BHK rental units in gated apartments on an 11-month residential lease. The company caters specifically to career-oriented home seekers between the ages of 24 and 36. It additionally offers services like water can subscriptions, housekeeping, vehicle washing, and food for its tenants, as per the Entrackr report.
The company seeks a 2-month deposit, which is considerably competitive as compared to the existing service apartment market, which demands a 6- to 10-month deposit. Explaining this pricing, Reddy said, "The reason why people charge a heavy deposit is because it¡¯s coming from a tenant. When an individual landlord charges that money, it is justified because he has to handle any cost-related issue. We use a data layer to try and mitigate the risks with the type of tenants we take."
The company works with people who are eligible to pay a certain amount in advance by signing the agreement before entering the property, thereby reducing the risk.?Apart from this, he also explained how Kots partnership with Croma helps mitigate the risk. "We have built all furniture in a modular way so that anything can be refurbished and restored at a fraction of a cost."
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In Bengaluru's Whitefield alone, there were over 40,000 searches for 1-BHK units, but the organised industry was dealing in a mere 200¨C300 units. This demand-supply gap ensured that a well-thought-out proposition would succeed. To de-risk the project, Kots needed to manage at least 40 units within a single premises, and it offered landlords a nine-year assured rental for customised buildings with 1-BHK apartments, as per the Moneycontrol report.
Landlords holding small parcels of land were more willing to partner than large developers. A 6 percent return was assured with an annual hike of 4 percent. In addition, with the creation and management of gyms, clubhouses, and other lifestyle facilities within the complex, the value of the property was enhanced. This made the proposition even more attractive to landlords.
Since most of these projects are in newly evolving localities where small landlords exist, the asset value has been increasing 11 percent year over year.
For a landlord who invested Rs 50 lakh per apartment with a 6 percent rental yield, a 4 percent annual hike, and a compounded annual growth rate of 11 percent, the return on investment after 10 years was 2.5 or 3x. There was also a new category of millennial investors who were buying plots for future sale.? They were happy to build it to specifications if it generated passive income regularly. Many also had entrepreneurial ambitions and needed this safety net before they started their own ventures.
Already, the group has 12 projects with at least 40 units per project and 700 units in East?Bengaluru?areas such as Bellandur, Whitefield, Mahadevapura, and recently in Hennur. All are occupied. The promoters plan to escalate this to 1,000 apartments under lease by March 2024. Since tenants come with well-placed IT jobs, they are already partially derisked. A standardised online model at scale ensures predictability. Tenants sign up and pay the rent in advance. If the tenant can¡¯t pay for any reason, a 30-day notice is given, and they have to vacate, as the report mentioned.
While this group focused on location, locality, and price to get the best returns, the market at the base of the pyramid for affordable rental housing is wide open. With a few tax and other policy incentives thrown in, this could well become the cash cow of the Indian residential real estate market. The promoters here listened to the user community and came up with a model that fit that. Kots has now ventured into studio and 2-BHK apartments measuring less than 600 sq ft each. As the format catches on, it is quite possible that there will be stiff competition from newer operators and landlords. It is still early days, with derisking measures in place. As the market matures, insurance protection may also come into play.
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