MUMBAI: At Rs 65 lakhs, a one-bedroom serviced apartment in Andheri seems like a dream investment for Piyush Sharma, who is working with HSBC Bank. His office is close by and although the unit is only a modest 400 sq ft, Sharma is not put off – he is single and does not need a lot of space. Should he decide not to stay in the unit, he could always opt for the leaseback option offered by the developer. Such serviced apartments have especially come up in areas like Andheri, Goregaon, and Worli in south Mumbai. Since these localities are the prime commercial hubs and have a steady flow of visitors all around the year, it has provided the serviced apartments segment an excellent opportunity to grow.
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 provide. Don’t forget to undertake a due diligence of the project before sealing the deal though.
Sudeep Jain, managing director-hotels and hospitality group, Jones Lang LaSalle India, says, “The concept of serviced apartments has been around in one form or another for around 10-12 years in India. Today, it works very well in the metros and larger tier-II cities. Serviced apartments are the emerging trend in the corporate hospitality sector. Often, the volume of executives in many MNC and domestic companies is too erratic to justify a stand-alone company guesthouse. The needs of such business occupants are very different from those of the usual hotel occupants. Serviced apartments, which invariably offer a suitable four star service and facilitation level, are the natural choice.”
According to experts, if there has ever been a good time to invest in serviced apartments, it is now. The corporate travel market in Mumbai is growing rapidly and the growth is expected to accelerate. People are increasingly travelling inter-state for both, business and leisure and they are seeking long-term, cost effective accommodation options. Mahesh Gupta of Mint Apartments, a Mumbai based serviced apartment chain, hints that things will only get better for the sector. Coming into existence in India in late 1990s, the sector began gaining traction as the service providers, enthused by the demand potential, went the professional way.
However, compared to global markets, where the concept is an old one, India still lacks dedicated service providers in the tier-II cities. In some cities, mid-market hotels and serviced apartment chains fight for the same set of customers. A serviced apartment is often a fully-furnished accommodation, which is available for short-term or long-term stays. These apartments come with basic amenities for daily use, which include a kitchen with a cooking range, a kettle, a microwave, a washing machine, etc. If you don’t want to cook or undertake the routine chores, you can even sign up for a complimentary breakfast, laundry service, etc.
“The market segmentation for this sector is almost entirely corporates, who utilise serviced apartments for their managerial staff and long-stay expatriates. Key demand drivers for serviced apartments are IT/ITeS, biotechnology, services sector, BFSI and medical tourism. Even while the concept of serviced apartments is well understood, the actual number of serviced apartments is fewer than the actual market potential in India,” informs Shveta Jain, director-residential services, Cushman & Wakefield India.
Banks and MNCs prefer residences in suburban hotels, where the rates are lower and the location is closer to the newly-sprung business districts and commercial centres. Leading hotel chains such as Hotel Leela Venture, Grand Hyatt and Marriott International, run several serviced apartments in the country. Ascott, which claims to be the world’s 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. The 147-apartment Grand Hyatt Residences that has been operational for two years now, has already reached an occupancy level of 60 per cent, elaborates Sarosh Khatib, director-marketing, The Grand Hyatt. The average stay is from eight months to one year, with a minimum stay of 30 days.
A one-bedroom apartment typically commands Rs 6,500 for a 1-3 month stay, Rs 6,000 for a 3-6 month stay and Rs 5,500 for over six months. In terms of space and facilities, this turns out cheaper than the average room rent of Rs 5,000 for a standard single room in north Mumbai hotels.
According to Supriya Malhotra, general manager, Oakwood Premier, “The range of amenities, innovative facilities and personalised services give guests the opportunity to enjoy city living while relaxing in a private residence.” Medical tourists also prefer staying in serviced apartments. Health tourists from the US, Europe, the Middle East or Africa, who come for a medical procedure lasting a month or two, are often accompanied by family members. In some cases, the tourist has to stay back for a few more weeks after the operation for recuperation and a serviced apartment offers an ideal alternative to an expensive hotel.
Although mainstream hotels are major players in the business, several developers are offering these apartments to individual buyers too. Some of these are targeted at the ultra-rich who want to own accommodations in different locations without worrying about their maintenance. Several small-to mid-sized builders are marketing serviced apartments as an investment opportunity with returns in the range of 9-14 per cent 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 per cent a year, while capital appreciation is 10-15 per cent. Like any property investment, location is important in this case too. Proximity to business centres and good connectivity will lead to a 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.
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 funding guests. Jain opines, “This concept has immense growth potential. The best locations are in and around the city’s CBD and SBD areas.”