Don't Rent Out! Make up to Five Times the Return on Service Apartments
So you are interested in investing in an apartment or a villa in India. Given the demographics and the economic growth in the recent years- it may not seem like a bad idea. But, before you go ahead consider the following facts about the real estate market-
Real estate transactions are still mostly dominated by cash transactions, which result in “parking of money” rather than any expectation of real returns - this effectively pulls down yields
Gross yield from apartments in metro cities like Delhi and Mumbai rarely exceed 3 % and, Net yields in metros rarely cross the 2% mar, due to the 10% tax deducted at source (TDS) on all rentals as well as hefty management charges which the owner must bear.
Gross yields in Tier 2 cities can exceed 4% at times, but these investments are mostly regarded as risky given that there are only few reliable builders in tier 2 cities. But, things are changing with some technology companies relocating to smaller cities in order to reduce cost and offer world class infrastructure in these cities.
Given that real estate is highly illiquid, making a 2% net yield on an asset when the inflation rate is 7 to 8% on average might not be the best proposition in the long run
For Indian real estate market, the saying ‘”fools build houses and smart people live in them” might will be apt. But there are way in which you could still make high yields from your real estate investment – not depending on elusive capital gain.Further, any high yield real estate asset will have a high resale value, as the buyer can immediately starting making cash flows.
If you look at the Real Estate hospitality industry, you will note that well run service apartments can generate gross yields of up to 12% per year, which is a whopping 10% more than just rentals. Also, Service apartments are popular as they provide a good option for relocation professionals as well.
Choosing the right location & design aspects
It is important to fit the apartment type to the client segment you are targeting. The wrong product or the wrong location could spell bad returns, an illiquid asset and financial distress. It is also important to understand how the apartments you are investing in will be managed – building design, marketing & operations are extremely critical. Eg – Choosing a commercially oriented design in a holiday destination might not be the best option. Design aspects must take into account common areas, provision or room service, housekeeping, staff quarters and special needs. It is imperative that the apartment type meet the users expectation.
Gurgaon - A booming Corporate Stay Market
The Executive Service Apartments market is steady
Intuitively one can assess that these apartments must be located close to commercial centers , ideally close to industries that have a lot of business travel - technology or consumer goods. Some other aspects to consider
Clientele would pre-dominantly be single travellers,staying for periods ranging from a few weeks to a year. In these cases Studios and one bedroom apartments would be preferred.
Design but be modern and functional with emphasis on work spaces, relaxation area as well as a modern kitchenette is a must(most executives may not be avid cooks but require a basic kitchen).
Apartments must be serviced in terms of housekeeping and room service regularly, a well trained staff is imperative but staffing costs can also be a big operating burden unless handled judiciously.
Most executives would require concierge services and a gym, adding these facilities does come with a cost but the benefits are in the form of higher returns.
Cost of managing these apartments must be reasonable as corporate usually have a host of hotel choices. The ultimate cost differential (on a per day basis) must be at least 50% plus to tilt the balance in your favour.
There are plenty of physical marketing channels including direct B2B sales – this works especially well in the executive segment. Nonetheless, it makes sense to work with a professional company for managing and marketing your assets (if you do intend to be on the service side). There are several asset management companies in India that can take care of all the requirements for a fixed monthly fee or profit share. Its best to deal with a company that can take on your inventory and then manage the entire property. There are various options present today, especially with the host of international establishments entering the fray. Tying up with a professional company to manage your executive service apartments can not only give you extra returns but also peace of mind.
Holiday Rentals in Goa- could well be the next big rental market
Holiday Villas - Mixing business with pleasure!
Most people would assume that an apartment close to busy hill station road or a popular beach would be ideal. It is surprising that apartments which are quaint and away from the bustle actually do better than commercially well located ones. There have been some authoritative studies done on attractiveness of holiday accommodation to long term visitors, and most of them chose to stay away from commercial spots. So there is merit in looking for that little gem of a property, tucked away in a serene corner. Some tips on choosing the right holiday apartments
Well connected non- commercial locations work best for guests coming for long periods.
Holiday apartments with hotel like facilities work well, but be aware of the hidden charges you may end of paying. The holiday season don’t last more than 6 months, but charges are year round!
Open plan apartments work best in holiday destinations. Small cottages or duplex apartments with balconies are ideal for families. Small flats in tall buildings are generally a no no.
Be aware of how the occupancy system in the complex works – pro rata system or every owner doing his or her own marketing. Time shares are generally complicated and have fallen out of favour.
Ideal cities for holiday apartments are Goa, Nainital, Dehradun and other Himalayan destinations. Marketing these properties can be a hard task though and it takes a while for them to become known on the tourist circuit. There are various websites that aggregate service apartments and help in generation online bookings for your property. From your end a good website is an absolute must.
Access to Great & Inexpensive Medical Care -Many good healthcare facilities in Delhi NCR
Medical Service Apartment prospects in India
This is another segment of the serviced residence industry in India that has taken off and should do very well in the future. By some estimates, the medical tourism industry in India will grow by 15% annually. There are many world class hospital chains in India that are catering to overseas patients .
Medical Accommodation is a rather specialized segment and there are misconceptions about catering to the accommodation needs of medical tourists. People believe that a hospital like care environment would be the right approach, on the contrary patients who have long term procedures in hospitals do not like to stay in an environment that reminds them of the hospital at all! Some other noteworthy points:
Patients come with their families and ideally like large apartments. They generally need support of the family and staying in hotels can be rather expensive.
People undergoing prolonged medical treatment have special dietary requirements and hence kitchens in apartments are essential.
A serene calm and non commercial environment goes without saying, given the needs of a person undergoing treatment. Reliable transport services would be highly appreciated!
In conclusion, there are numerous choices when looking for high yielding real estate investments in India. But choose the right apartment for the right segment. And work with a professional management company to manage your assets and you won’t regret your decision!