In Conversation with Deepak Dhar
Who is the target consumer for NestAway?
NestAway aims at making the process of renting houses hassle-free for urban migrants and hence its main target audience is anyone who is looking for a house on rent across cities with an average age group of 22-40 years. Urban migrants who’ve moved to a new city for jobs, education, or marriage are the most common profiles of people staying at NestAway homes. Apart from bachelors, NestAway has also been focusing on the family segment.
NestAway also targets homeowners (local & NRIs) and area partners who help tenants in identifying homes before they finalise on properties. With house owners, NestAway works very closely to understand their needs and takes care of the property; including furnishing the apartment, installing the right safety and security measures, assisted house visits with the help of area partners, reaching out to prospective tenants, and a property insurance of Rs1 crore in case of accidental damage. NestAway provides shared homes, private rooms and full houses to its tenants.
What are the opportunities and the challenges of being in a category of rental homes?
Renting a house is the first step for most individuals towards living independently and eventually buying a home. This makes it a critical part of the home-buying cycle, providing a huge opportunity to companies in the online home rental segment. Apart from single family rentals and paying guest accommodation, ‘sharing apartments’ is the key home rental model that is followed in India. With the increase in urban migration it becomes a key sector for the business to flourish as working individuals or students find it more affordable to share the house while also ensuring means to maintain their privacy away from the owners.
In terms of challenges, the legacy of several state-enacted Rent Control Acts (RCAs) casts a long shadow that has disincentivised landlords from renting out their houses. The pro-tenant RCA froze rents and made eviction difficult. Repealing RCAs coupled with a fast-track court mechanism to handle eviction disputes can potentially reinvigorate market confidence in rental housing. Also, low rental yields offer little incentive to undertake the risk of renting apartments. Our analysis shows that 2-3% of rental yield in India is one of the lowest in the world. These are lower than the prevailing risk-free market investments like the 10-year yield on government bonds.
Lastly, there is still no qualifying test, no licensing or rule when it comes to brokers.
What will be the brand’s communication strategy, especially since this is a new area for consumers to explore – renting homes through the ease of an app. What has been the biggest challenge for you?
The overall brand communication for NestAway has been crafted around the insight that every urban migrant faces some form of discrimination or bias while looking for a house. NestAway addresses these issues. As a thought- and category-leader, NestAway takes the scourge of discrimination head on to create greater awareness among consumers and build a robust home rental ecosystem in India. We also believe that as a brand you cannot have an isolated point of view anymore, you cannot be disjointed from whatever is happening in reality.
We stand against all forms of discrimination; our campaign #HomesThatDon’tDiscriminate was a step in the direction. NestAway's movement against discrimination is already underway, both in brand communication, brand behaviour as well as outreach.
How did the idea of starting NestAway come to you? What were the reasons behind starting the company?
When the founders of NestAway moved to Bangalore, they had trouble finding a house on rent. Unmarried people are not the house owners’ first choice, and getting a house on rent in decent localities was not known to be reasonable. Apart from this, the steep advance deposit amount of five-10 months' rent was an added burden on young millennials.
In June 2014, when Jitu (Jitendra Jagadev, one of our cofounder’s) became a house owner, it was decided that the house will be rented out only to bachelors. We then posted a Facebook advertisement to understand the people’s interest. To our surprise, all the four beds that we had offered were sold out in a day. Clearly, there was a huge potential in this market. In January 2015, we (Amarendra Sahu, Jitendra Jagadev, Smruti Parida, and I) started NestAway with the objective to make houses available at two months’ rent in deposit sans an interview with the owner, especially for youngsters. We wanted to create an ecosystem responsible for making living conditions better by entering the largest rental market space in India.
How does the model work? How is it viable financially for you and what's the commission, terms and conditions, etc?
NestAway accords highest importance to affordability and makes it easier for tenants to find accommodation of their choice that meets all their requirements. Through the NestAway app or website, prospective tenants can find, book and move in to a rental home of their choice. NestAway app also provides support to tenants from moving in to the new house, to even paying the rent for maintenance services. NestAway charges only two months of security deposit with zero brokerage and makes the transactions completely transparent through the app. There are no stale inventories in NestAway homes. For the owners partnering with NestAway, the company takes care of end-to-end property management, provides assistance in rental agreements and other documentation and have verified move-outs. NestAway charges an approximate of 12.5% on each rental agreement that varies for different houses. Apart from this we have also aligned with local real estate brokers to provide wary house owners with some level of comfort. These affiliate partners get 2.5 percent from each house’s rent every month as income from us which makes it as a stable income for the partners.
Could you share the growth plans of the brand in the next two years? How are you identifying the areas of expansion? In 2018, how many more cities will you cover?
In a short span of 36 months, we have seen an increase in the demand when it comes to the home rental industry. With connectivity, convenience and security of neighborhood becoming the top factors for millennials, we believe innovation in design and technology will go a long way in providing the appropriate rental housing solutions needed by millennials. We are currently doing over $4 million (Rs 26 crore) a month in rentals and are looking at 8-10 top cities, where we can have a greater penetration in the market. With our constant drive against discrimination, we are aiming to make living spaces that do not discriminate and provide the proper safety and security required by millennials today. As mentioned, we plan to go work on market penetration more than expansion.
Given that NestAway has raised good funding, what will be the strategy for growth in the coming year?
We have raised $43.2 million in funding by investors such as Tiger Global, IDG Ventures, Ratan Tata, and Yuri Milner. After the acquisition of Zenify in May this year, we also started focusing on family rentals. About 40% of the new bookings now comes from the family segment with the ratio being at 65:35 for shared versus family rental houses. We are currently aiming at about 50,000 houses by 2020 to break even. We’ve also closed another round of funding and the details will be closed shortly.