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How feasible are investments into serviced apartments?

Investments into serviced apartments are slowly gaining popularity as the income generation comes from not just rentals but also from value added services. Builders are developing projects in the major metros, and in smaller towns for exclusive use as serviced apartments.

Builders in major metros such as Delhi, Mumbai, Kolkata, Chennai and Bangalore are now catering to this specific segment. Serviced apartments are also prevalent in smaller metro cities such as Chandigarh, Coimbatore, Kochi, Agra, Jaipur, Shimla, Hyderabad and Pune, to name a few.

Though serviced apartments have been around since 2003, the concept as an investment option is still quite new. The three main categories for serviced apartments are business, leisure and healthcare. In the first instance, the main clientele for serviced apartments is the corporate sector and the demand for this accommodation is found in cities which have a large presence of multinational companies.

Ashwini Raj, Assistant Manager, Oakwood Premier Prestige in Bangalore said, “The majority of the clients are corporate. So the demand is mainly in areas such as Whitefield and the central business district.” She added that December and January are low seasons for serviced apartments.

Gurunath of the Mumbai-based Access Travel which handles bookings for serviced apartments said, “The demand for service apartment is largely from the corporate sector. Individual bookings also take place right round the year except during the monsoon months of June – August, when the demand is low.” He said that the average occupancy rates are between 60% – 65%. “Serviced apartments attract customers because they get double the space at half the cost – a home away from home,” he added.

You will also find a number of serviced apartments in tourist destinations such as Goa and so on. Serviced apartments are also popular options for people who come to certain cities for medical facilities, yoga or for short term study.

There are apartments in all categories ranging from premium to the economy level. These apartments are more convenient for longer stays; the duration ranging from weeks to months. Besides a small kitchen, these apartments come with a telephone and internet connections as well as housekeeping and concierge services. Some of the apartments also provide food.  Gurunath said, “Advance payment is required for booking and like hotels they have a cancellation policy.”

According to research, the investments into serviced apartments will fetch returns of about 9% to 14% year on year. Currently most investment into homes is for appreciation than for an income from rent. Reports say that the yield year on year on rent from residential real estate is between 3% and 4% while the capital appreciation of residential property ranges from 10% to 15%. The return on investment of a serviced apartment is between 9% and 14%, research says, which makes it an attractive investment option.

Similar to other investments into property, the cost of investment into the property will increase if the project is close to special economic zones, central business districts and airports, likewise the returns. The rental yield one gets from the property would also depend on the quality of service at the apartments and marketing the apartment and the services. Marketing the property is important to ensure good occupancy levels.

On the flip side, Thomas, a Mysore-based developer who has developed a project solely for serviced apartments in Bangalore said that it was very difficult to market the property and find professionals to manage it. He said that it was difficult for individuals to manage serviced apartments as quality service forms a large part of the promise.

Now, this is a problem area as there are not many professional pan India companies who undertake the management of serviced apartments. Most serviced apartments are managed by the owners or local companies and this leads to a discrepancy in service standards. However, there are exceptions to the rule as some builders have undertaken the management of the service apartments also; one example is Bangalore’s Brigade Homestead.

While investing into a serviced apartment, all the rules governing an investment into a home has to be followed. A proper due diligence on the builder has to be carried out and ask questions like: when will the project be ready? Will the builder do the interiors or do you have to do them?

Image courtsey: oleandersservicedapartments.com

 

Nina Varghese for IndiaProperty.com

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One comment

  1. I would like to rent out my flat in Delhi as a Service Apartment.
    Please forward names of some good companies who take up management of such apartments.

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