Serviced residences: a new investment opportunity

The Indian market started getting acquainted with the concept of serviced residences a decade ago. The concept was introduced initially in the metropolitan cities such as Mumbai,Delhi and Bangalore,but has now spread to other cities such as Chennai,Hyderabad,Pune and Ahmedabad that has emerged as major markets for serviced residences.

A huge demand exists for high-end serviced residences in the National Capital Region (NCR) especially Gurgaon and Noida. The main client base here is the corporate sector where executives of multinational corporations travel on business for a duration ranging from a few days to even weeks and in some cases months together.

Most serviced residences are spacious,stylishly designed and decorated tastefully and equipped with all the amenities for a comfortable home stay.

A serviced residence is essentially,a furnished apartment available for short-term or long-term stays. The USP of these residences is that they are much better alternatives to hotels because for the same or lesser price of a hotel room,one can experience a homely atmosphere making it a great choice for the business traveler.

The residence usually comprises a bedroom,a living area,a work corner and a self-contained kitchen. It is also equipped with high-speed communication facilities. Besides housekeeping,some also offer conference rooms,fitness rooms and swimming pools within the complex itself.

The rates vary from as low as Rs 2,500 to as high as Rs 10,000 per day depending upon the location and services provided. The rule of ‘length of stay’ is non-existent in India making it possible to stay on a daily basis,unlike other countries like Singapore,where a minimum seven-day requirement is mandatory for a product to be classified as a serviced residence.

Traditionally,top serviced residence brands were operated mainly by mainstream hotel chains,which wanted to lower operating costs and reduce the staff to guest ratio. A number of international brands have developed serviced residences in association with local developers in Delhi,Mumbai and Bangalore. The increased demand is also prompting international and Indian property developers to cash in on the growing need with many companies evaluating the potential of serviced residences aggressively.

In some cases,the developer retains the rights to manage and maintain the property. Out of the total income earned from the rentals,a percentage is kept with the developer as the maintenance cost and the rest is divided equally between the investors.

Today,serviced residences are also an investment opportunity with attractive returns generally more than 12 per cent per annum,which can go up to as high as 24-25 per cent.

In India,the market size of this segment is miniscule compared to South East Asia,Asia-Pacific,Europe and the United States,but has huge potential to grow keeping in mind the increasing travel and shortage of hotel rooms in the country.

– The author is MD,Assotech Realty