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Home-ownership : Multipliers Matter

Who else will face the collateral damage in the inexorable march from ‘homes’ to ‘living services’?

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Over many years now real estate developers have done their industry a disservice by debasing their principle product – homes and apartments – to a mere financial asset.  In doing so, the category has been mired in myopic purchase considerations and attracted the wrong target audience.  In fact, home ownership, in particular first-home ownership, unlocks a variety of multipliers that shape both the well-being and the life prospects of the families that occupy them.

Financial dominos.  As we all know, the appreciation potential of residential real estate has been overstated.  Even so, there are other financial benefits that have not received their deserved attention.  First and foremost, so far at least, an owned home has been a store of value.  It provides a natural insurance to the family from volatility in earnings.  An owned home also increases the owner’s credit worthiness and paves the way for enhanced access to cheaper credit for personal or professional needs.

Health and Wellness outcomes.  At the basest level a well-planned modern home assures better health and sanitation considerably reducing the risk of infectious diseases.  Public health specialists contend that health outcomes improve not just when people move from poor quality to better planned homes but also when they move from rented homes to self-owned homes.  Better daylight and ventilation are known to benefit mental and emotional wellbeing.  Architects, recognising this, spend considerable time studying the sun path and wind directions at each new site to optimally orient buildings and windows.  In metropolitan cities most new residential developments include a variety of sports and fitness amenities.  And finally, these gated communities are often much safer for women and children.

Social and Economic upshots.  Moving into a better home changes the life prospects of the family members.  Children from small and crowded homes often exhibit slower cognitive development. Those from better residential developments have access to better educational facilities.  Research conducted across developing countries has shown that this results in as much as twenty five percent higher attendance and lower dropout rates.  The youth benefit from the positive rub-off from peers who are achievers rather than drifters.  With many basic irritants taken care of – think running water and reliable electricity – home makers free up time to pursue alternate vocations.  The stability of owning a home induces a renewed sense of confidence and empowerment.  Women, sometimes for the first time in their lives, can access new opportunities to work.  Senior citizens find a second wind getting engaged in professional, social or spiritual activities that give them meaning and fulfilment.  And these communities are often multi-cultural, engendering much needed harmony and tolerance.

Environmental benefits. There is a heightened awareness of, and sensitivity to, the environment among the urban populace.  Modern urban developments afford their residents many avenues to do their bit for the cause.  Well-planned landscapes indulge those with a green thumb.  Sophisticated solid waste management, rain water harvesting and water treatment, and use of green energy in common areas are all being embraced with enthusiasm.

If indeed there are so many multipliers to first-home ownership, why then is the benefits’ case presented so narrowly to consumers and shareholders?  The telecommunications industry in India faced a similar quandary at the turn of the millennium.  There was a body of academic research supported by incontrovertible real-world evidence that a ten percent increase in teledensity could lift GDP growth of the country by up to two percent.  Early mobile users were singing paeans to the unforeseen productivity benefits they were benefitting from.  Yet, there was a chasm between appreciating these multipliers and aligning both policy and business models to realise them.  Mobile operators were initially unable to get their heads around how they could monetise these multipliers to underwrite the sizeable investments required in infrastructure.  As they took tentative and uncoordinated initial steps to address the holy grail of the ‘services’ opportunity, they were confronted with at least three non-traditional competitors.  Handset manufacturers, operating systems developers and app developers were each trying to stake out their respective territories, bringing to bear entirely different capabilities and benefiting from markedly more attractive economics.  Over the past two decades the balance has tilted decisively towards the operating systems and app ecosystem.

Viewed through this lens, we can perhaps begin to comprehend the growing buzz around co-working, co-living and student housing businesses in real estate.  These are but three early manifestations of services-led business models in the real estate space.  More will undoubtedly emerge.  Like what happened with the digital landscape, these service providers are setting their sights on a suite of offerings surrounding the capital hungry real estate development business, expecting to harness the multipliers at a fraction of the investment.  Here too will economic value shift rapidly to these new battlegrounds?  Can real estate developers make a credible play, or will they be forced by either their inaction or ineptitude to abdicate this space?  In fact, the digital sweepstakes ended up disrupting not just the telecommunications infrastructure industry but also sectors further afield including financial services, media and healthcare.  Who else will face the collateral damage in the inexorable march from ‘homes’ to ‘living services’?  Only time will tell.  But, just as it was in telecommunications, the winners will unlock large untapped market opportunities and in doing so will leapfrog league tables in their industries.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Arvind Subramanian

The author is CEO, Mahindra Happinest

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