Invest in serviced apartments to get higher rental incomes
As India globalises, serviced apartments have a bright future. You can invest in one of these to get a higher rental income.
There has been a sharp surge in business travel over the last few years with India becoming more integrated with the global economy. Executives from India and abroad frequently travel to business hubs and spend weeks and months working from different locations.
Staying at hotels for such long periods is costly. Serviced apartments offer an alternative. For house owners, they serve as an alternative to giving their premises on rent.
TEMPORARY HOMES
A serviced apartment is a furnished accommodation with a small kitchen and rooms generally more spacious than in a hotel. It also has modern communication facilities such as telephone, fax and an Internet connection. Some also offer conference rooms, besides housekeeping staff and a concierge service.
"The concept of serviced apartments arrived in India in 2003-04. Starting from Mumbai, Bangalore and Delhi, serviced apartments have extended their presence to smaller cities, driven by commercial activities," says Anshuman Magazine, chairman and managing director, CB Richard Ellis South Asia.
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The main client base is the corporate sector. The demand is primarily driven by executives of multinational companies (MNCs) and expatriates who come to India on deputation for periods ranging from weeks to months. There is a huge demand for high-end serviced apartments in the National Capital Region (NCR), especially Gurgaon and South Delhi, due to the presence of a large number of MNCs.
"Globalisation is resulting in an increasing number of expatriates coming to India for work. As the duration of their stay is assignment-based, it makes sense to take a serviced apartment on rent rather than staying in a hotel," says SK Sayal, director and chief executive, Alpha G:Corp, a Gurgaon-based developer. The company has serviced apartment projects in Ahmedabad and Amritsar. These residences are owned and managed by the builder and not sold to individuals.
"Top serviced apartment brands are operated mainly by mainstream hotel chains which want to lower operating costs and reduce the staff/guest ratio. A number of international brands have developed serviced apartments with local developers in Delhi, Mumbai and Bangalore, catering largely to the corporate sector," says Magazine.
Leading hotel chains such as Hotel Leela Venture, Grand Hyatt and Marriott International run several serviced apartments in the country. Hilton Hotels plans to open its serviced residences in Bangalore in May 2012. Ascott, which says it is the worlds largest serviced residence owner-operator, has been expanding in Mumbai, Delhi and Pune to cash in on the opportunity offered by the demand-supply gap.
INVESTMENT OPPORTUNITY
Athough mainstream hotel companies are major players in the business, several developers are offering these apartments to individual buyers. Some of these are targeted at the ultra rich who want to own accommodations in different locations without worrying about their maintenance.
EXPERT TIP: Insuring your newly bought flat is a must
Several small- to mid-size builders are marketing serviced apartments as an investment opportunity with returns in the range of 9-14% per annum. At present, investment in residential properties is more for capital appreciation than rental income. Annual yield via rental income from a residential property is generally 3-4% a year while capital appreciation is 10-15%.
Central Park is constructing a serviced apartment complex in Gurgaon, a suburb of Delhi. The company plans to build studio and 1 BHK (bedroom, hall, kitchen) apartments, both with and without a study room. It will also build space for retail outlets, fitness centres and multi-cuisine restaurants.
In Noida, another Delhi suburb, Shubhkamna Buildtech is offering serviced apartments with an assured return of 14% per annum on a minimum investment of Rs 10 lakh. More Delhi-based developers plan to build serviced residences for sale to individuals. Several projects are on the drawing board for other locations as well.
Like any property investment, location is important in this case too. Proximity to business centres and good connectivity will lead to higher rental income and capital appreciation. As the quality of service also decides the rental yield, it is important that the facility is managed by a reputed service provider.
PROFESSIONAL LINK
Serviced apartments can become a popular option for generating higher rental income from value-added services when professional property management companies start offering services and finding guests.
"The sector does not have professional companies to run and manage serviced apartments owned by individuals. At present, some individuals who let out their houses as serviced apartments manage it themselves," says Sanjay Sharma, managing director of Qubrex, a real estate consultancy and brokerage.
At present, only local firms offer services for operating individual-owned apartments as fully serviced residences on a profit-sharing basis. Some firms such a IL&FS Property Management & Services manage properties without taking care of the operational aspects.
As India's economy expands, the demand for serviced apartments will increase along with the floating population. These apartments can also become a preferred choice for those seeking a luxurious lifestyle. With demand rising, more developers will start offering facility management services, either directly or in collaboration with hospitality firms. "The concept will grow as India becomes more global and offers career opportunities on a par with the developed world," says Alpha G:Corp's Sayal.
If you want to invest in real estate, it may be a good idea to diversify your exposure to serviced apartments for a higher annuity income than what residential apartments can give. Don't forget to undertake a due diligence of the project before sealing the deal.
Staying at hotels for such long periods is costly. Serviced apartments offer an alternative. For house owners, they serve as an alternative to giving their premises on rent.
TEMPORARY HOMES
A serviced apartment is a furnished accommodation with a small kitchen and rooms generally more spacious than in a hotel. It also has modern communication facilities such as telephone, fax and an Internet connection. Some also offer conference rooms, besides housekeeping staff and a concierge service.
"The concept of serviced apartments arrived in India in 2003-04. Starting from Mumbai, Bangalore and Delhi, serviced apartments have extended their presence to smaller cities, driven by commercial activities," says Anshuman Magazine, chairman and managing director, CB Richard Ellis South Asia.
EXPERT TIP: How a joint home loan is beneficial
The main client base is the corporate sector. The demand is primarily driven by executives of multinational companies (MNCs) and expatriates who come to India on deputation for periods ranging from weeks to months. There is a huge demand for high-end serviced apartments in the National Capital Region (NCR), especially Gurgaon and South Delhi, due to the presence of a large number of MNCs.
A serviced apartment is a furnished accommodation with a small kitchen and rooms generally more spacious than in a hotel
"Top serviced apartment brands are operated mainly by mainstream hotel chains which want to lower operating costs and reduce the staff/guest ratio. A number of international brands have developed serviced apartments with local developers in Delhi, Mumbai and Bangalore, catering largely to the corporate sector," says Magazine.
Leading hotel chains such as Hotel Leela Venture, Grand Hyatt and Marriott International run several serviced apartments in the country. Hilton Hotels plans to open its serviced residences in Bangalore in May 2012. Ascott, which says it is the worlds largest serviced residence owner-operator, has been expanding in Mumbai, Delhi and Pune to cash in on the opportunity offered by the demand-supply gap.
INVESTMENT OPPORTUNITY
Athough mainstream hotel companies are major players in the business, several developers are offering these apartments to individual buyers. Some of these are targeted at the ultra rich who want to own accommodations in different locations without worrying about their maintenance.
EXPERT TIP: Insuring your newly bought flat is a must
Several small- to mid-size builders are marketing serviced apartments as an investment opportunity with returns in the range of 9-14% per annum. At present, investment in residential properties is more for capital appreciation than rental income. Annual yield via rental income from a residential property is generally 3-4% a year while capital appreciation is 10-15%.
The concept of serviced apartments arrived in India in 2003-04.
In Noida, another Delhi suburb, Shubhkamna Buildtech is offering serviced apartments with an assured return of 14% per annum on a minimum investment of Rs 10 lakh. More Delhi-based developers plan to build serviced residences for sale to individuals. Several projects are on the drawing board for other locations as well.
Like any property investment, location is important in this case too. Proximity to business centres and good connectivity will lead to higher rental income and capital appreciation. As the quality of service also decides the rental yield, it is important that the facility is managed by a reputed service provider.
PROFESSIONAL LINK
Serviced apartments can become a popular option for generating higher rental income from value-added services when professional property management companies start offering services and finding guests.
"Top serviced apartment brands are operated mainly by hotel chains which want to lower operating costs." Anshuman Magazine CMD, CB Richard Ellis South Asia |
At present, only local firms offer services for operating individual-owned apartments as fully serviced residences on a profit-sharing basis. Some firms such a IL&FS Property Management & Services manage properties without taking care of the operational aspects.
As India's economy expands, the demand for serviced apartments will increase along with the floating population. These apartments can also become a preferred choice for those seeking a luxurious lifestyle. With demand rising, more developers will start offering facility management services, either directly or in collaboration with hospitality firms. "The concept will grow as India becomes more global and offers career opportunities on a par with the developed world," says Alpha G:Corp's Sayal.
If you want to invest in real estate, it may be a good idea to diversify your exposure to serviced apartments for a higher annuity income than what residential apartments can give. Don't forget to undertake a due diligence of the project before sealing the deal.
