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To cut rising costs,hospitals switch to ‘fixed-rental model’

In a Tier-III city like Vadodara,real-estate prices have increased exponentially in the past several years.

Written by Avinashnair | Ahmedabad | Published: December 7, 2013 4:07:20 am

In order to keep the rising cost of infrastructure down,hospitals in Gujarat are now adopting the “fixed-rental model”,a real-estate model that was traditionally evolved from retail sector and passed on the hospitality sector. It is now making quick in-roads into the healthcare sector as well..

“These days,we see that land owners do not want to part with their land. So for our new hospital in Vadodara,we entered into a 20-year-lease agreement with the land owner,who also built the hospital as per our specifications. Under this model,we will pay a monthly rental of about Rs 30 per sq feet to the land owner,” said Rajiv Sharma,CEO of Sterling AddLife India Ltd,while speaking on the sidelines of a conclave on the healthsector on Friday.

“The expenses involved in setting up a hospital are so high that we decided to adopt this model. We would have otherwise spent at least Rs 40 crore. Today the industry average for a hospital is about Rs 50 lakh per bed. This cost needs to be contained,particularly since the cost of land and equipment are rising,” said Sharma. Sterling’s hospital here occupies an area of about 50,000 sq feet.

In a Tier-III city like Vadodara,real-estate prices have increased exponentially in the past several years. According to global real-estate consultant Jones Lang LaSalle,the fixed-rental model is relatively new in Gujarat,where land prices are high in urban centres.

“This fixed-rental model was already in place in the retail sector. It then evolved to be incorporated in hotels. Now,it has reached the healthcare space. Under this model,the land-owner is paid a fixed rental for the building and the land for a specified period. This is done,irrespective of whether the project succeeds or not,” said Nirav Kothary,country head (industrial real-estate) of JLL.

“We have managed to keep the infrastructure costs down to Rs 30 lakh a bed in our hospitals in Ahmedabad and elsewhere,” Prashant Deshmukh,medical superintendent of Narayana Hrudayalaya Hospitals,said while speaking at the conclave where one of the speakers,Dr Mahendra Narwaria,Chairman,Asian Bariatrics Pvt Ltd,spoke of a yet-to-be-launched hospital in Hyderabad that has been built with an investment of Rs 2 crore per bed.

“The rise in capex for the healthcare sector is worrisome. We need a innovative financial model to bring down the costs,” Hosmac India Pvt Ltd MD Vivek Desai said.

Kauvery Hospital president (operations & projects) U K Anathapadmanabhan said that their hospital has managed to rein in the rising infrastructure costs by opting for a mix of foreign and indeginous medical equipment.

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