Beginning of the “End of ownership?”

by | Jan 20, 2019 | 0 comments

Ownership or in other words, possession of worldly goods has been for quite some time, a symbol of showing that a person has “arrived”. Often, a person is judged by the size of their house, the car that they drive in or the latest in fashion that they possess. It has been the norm for such a long time that in a subconscious level, our psyche is accustomed to think accordingly! But could we be at an inflection point where renting/sharing/collaborative consumption would be the standard way rather than ownership or possession? Is it the Beginning of the “End of ownership?”

Taking the Baby Steps..

The few tiny steps that were taken a decade ago are catching fire, leaving behind a trail of broken business models. One of the first waves of change brought about by the digital economy was letting us buy books/music/movies online. With the benefit of hindsight, it was probably natural that possessing them was one of the first ideas to be challenged by the rental wave. Rather than buying a DVD of a movie that we are most likely not going to watch more than once, why not just Netflix? Rather than buying a music album on a CD, why not pick our favorite songs on Amazon Prime? Or it could be Saavn, Voot, Wynk, Gaana, HotStar, Hungama and so on.

From Owning to Renting to Airbnb

Moving from the first wave to the biggest one. The major expense that a person tends to make in his/her lifetime is buying a house for oneself. Having a roof on our head and calling it as “Home” is a cherished goal. Ignoring the emotional reasons for buying a house, let us look at some logical reasons for not buying one. We buy an apartment today closer to the office that we work in. Next year, our company might ask us to move to another part of the city and we end up spending significant part of our lives stuck in traffic jams. Or worse, we might be lured by a tempting offer in a different city or a country altogether. We’ll have to make a choice of compromising either on our lifestyle or on our career.

Now let’s look at buying a house in pure numbers. Taking an example of an apartment in an upcoming locality in Bengaluru, it may cost a crore. But if we were to rent that property, it may cost us less than 4 lakhs in a year. Instead of buying it if we put that money in a fixed deposit, we won’t just cover the rent but have a lot more to spare. This is of course, not taking into account the appreciation in value of that property. Buying an apartment in certain locality that goes on to be regarded as upscale or has a new metro station or a great educational institute can add a lot of percentage points to the returns. If it already has any such features, the current price would already have locked that appreciation. If not, difficult to predict without the benefit of hindsight and is not much more than speculation.

Having said, let me get a disclaimer out of the way. We bought an apartment in Bangalore in 2011. My arguments against buying it were no match to my spouse’s hard and relentless campaigning. Luckily, the deal was good, and that locality was right in the center of the IT revolution, thereby giving me a rental yield* of 6.7%. Unfortunately, I took it on a housing loan (foreclosed in 6 years) and so when we calculate the rental yield after accounting for interest expenses, it falls to 5%. In most cases, especially in areas with high speculative interest like as in Mumbai, the rental yield could be lower than 2%. Rental yields have been at low single digits in India while debt funds with minimal risk deliver returns close to double digits! This dichotomy goes against the essence of a free and fair market. While such glaring discrepancies can sustain in certain cases for a very long time, unarguably they are neither healthy nor a safe investing option. Countries like India and China are notable exceptions and even after the recent downturn in real estate market, they continue to be priced expensively when calculated in terms of Rental Yield.

Rental Yield = ( Total rent earned in a year ÷ Price of the property ) × 100

Some already in possession of a house do develop a fad of owning a holiday home. In a year, one may spend a week or two at this place but tax and maintenance are for the whole year. Also, why would anyone want to have the same holiday home every year? Something like Airbnb lets people experience a beach property, farm house, a wooden cabin in the forest or a snow lodge, all without possessing them.

Zooming through the city 

For those who just can’t take any more of driving through our traffic jammed cities, Ola and Uber couldn’t have come at a better time. Family mobility during holidays? Zoom, Revv and many more to the rescue. As and when our public transport system improves, more folks will feel that owning a car is no longer a need. ZoomCar even has a model where you can rent your car to someone and earn money, if you don’t use your car often. That’s one way to make an asset out of a liability.

Drive a Mercedes without robbing a bank

Leaving aside driving a Merc A-Class for a month just at 85K, exclusive watches, suave tuxedo, luxurious gowns, designer hand bags, exquisite jewellery, ultra crafty furniture – Fashion, the ultimate symbol of identity and yet, the final bastion of personal possession hasn’t been spared from the march of the rental economy. Something that was begun by “Rent the Runway” in US, by renting women’s clothing and accessories has inspired copy-cats world over. Flyrobe, Stage3, Prendo, Furlenco, Rentomojo are some of the Indian companies in the business.

Lack of capital to own possessions is no longer a constraint in experiencing the innovations of the modern age. The sharing economy may increasingly lead to mass adoption of what was considered as luxury. The movement towards a rental economy has been rapid, we could either adapt or carry the risk of experiencing our own personal Kodak moment!


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