The option of investing in “co-living” is attracting more and more people, whether they are tenants or owners. For the occupants, the very attractive financial side of this option is enticing as also its community aspect which is fully in line with the mores that is now being established; indeed, this type of accommodation is based on the pillars representing our new and future society. Sharing, helping one another and the feeling of being in a community all these are integrated more than ever in the general comportment of the consumers, especially those of the occupant consumer.
The financial aspect of investing in co-living and the flexibility and ease in legal context without much of control mainly attracts the owners who have also become investors. Of course, the expected returns can be well above what is obtained by the residential real estate market and letting out for co-living currently does not require planning permit. The Council of state in fact has announced several times on the question and as per its jurisprudence, no planning permit should be obtained under the provisions indicated by CoBAT (Belgian Code for land planning).
But, if this might appear to be an opportunity for the investor, the situation is in reality more complex than it appears, whether it is the financial lure of this sector which is in a growth trajectory or its town-planning aspect.
Investment in co-living from the point of view of returns and capital gains
Properties that are under co-living are dedicated for this activity and therefore the number of prospective buyers will be reduced, if the property has to be put up for sale for one reason or other. More we wish to optimise returns from co-living, more it is required to redo the place, earmark the portions of the property and invest a significant part of the capital in furniture when it is primarily a property investment. All this devalues the property which will also not fulfil the criteria expressed by prospective buyers.
Moreover, in the context of private administration, it is important to pay attention to the increasing and considerable efforts in terms of management. The recurring « turnovers » among tenants, and the constant wear and tear of the furniture compromises to a large extent the actual and net returns that can be obtained in the long term. But other than this and in a more harmful way, the main concept of mixing tenants who don’t know each other sufficiently under the same roof can have a negative impact and be a source for several disputes for which the landlord, even though away from this community living, will still be impacted in the long run.
What is the legal framework for this type of investment?
Actually, in a more than comprehensive book on this subject (« La colocation au regard des polices de l’urbanisme et du logement » published by Anthemis), the expert advocate Ulrich Carnoy shares with us the various decisions made by the Council of state which constantly decides in favour of non-requirement for obtaining a planning permit to make a single family house into a collective housing.
To do this, the Council of state draws on various subjects that it considers as pertinent to support its decision many of which will still lead to the following questions :
- The fact that co-living does not change the main objective of the house in any way, which is a single family house, to an extent that co-living planned can be reversed too. That is, it does not prevent us from going back to the main purpose of the residence which is traditional single-family;
- The request does not generate more number of inhabitants than if the house was occupied by a family such as a couple with their student children.
In view of these two things, we can wonder on what reality this finding was based. Actually, a large majority of the current co-livings and many more to come, are products of investment whose only aim is to generate income. To do this, it is necessary for the owner to remodel the house to cater exclusively to this community living. Now, it is not uncommon to see co-living established in houses with +/- 300 m2 having 6 bedrooms and 6 bathrooms, or even more.
This observation makes it difficult for us to believe that the reversible nature of the house to its primary purpose, which is a single family house, is mostly preserved. Also, and still on the basis of reality of houses meant for co-living, a large majority among them are meant to house more members than what a standard family will have. Actually, when we hear about the advent of new projects in the Brussels-capital region constructed over several square meters and ready to hold no less than 50 bedrooms, we are again lead to question the “non-requirement for applying for a planning permit in a systematic way to establish a collective housing.” !
To conclude, it is strongly probable that we will see more and more of co-living and it will establish itself as a considerably big segment in the housing rental market. It is practically unthinkable that we will be able to regulate this market to such an extent that establishing it becomes more than problematic(ex « Airbnb »). But, we would like to draw the attention of investors who wish to get into a project of collective housing, to the challenges which are yet to come, both in terms of the risks involved in capital loss as well as in the town planning perspective.
So, before embarking body and soul on an investment project dedicated to co-living, keep a fallback solution in mind always. This can help you to go back to a normal setting and meet a wider demand, either in the rental market or in the sales market.