Service Apartments - A good real estate investment? Business Articles | October 29 Austin Bryant Lions Jersey , 2015

Service Apartments are fast becoming an alternative stay option for travellers in India. There is no debating the benefits to the end user - more space, less cost, higher flexibility & the feeling of staying at home. Developers have spotted the trend and there are many service apartment projects available to investors - so are they worth all the fuss? Some inside tips on how much returns one can expect from investment in apartments.



There has been a lot of focus of late on the hotel accommodation sector – emergence of new age options are squeezing the traditionally high end hotel sector. Consider the following statistics

Airbnb is now valued at more than any global hotel chain at close to USD 50 Bn 70% of international hotel travellers (according to OTA surveys) are open to service apartments, guest houses Will Harris Lions Jersey , B&B and even home stays 85% of hotel travellers consider lack of space and higher sundry charges a put off for them – an average service apartment costs 40% less than a comparable hotel New projects in India

All this has hardly gone unnoticed by the real estate companies who are actively looking for higher yield options for their constructions. A sample of the projects under construction

Ascot has announced a USD 500 MM serviced residences project in Delhi NCR (Due 2017) Assotech announces pan India project for 500 apartments (Due 2018) DLF and other local players like Central Park are also launching studio apartments in the range of USD 100,000 (Due 2016) Ireo is launching 150 apartments in the year 2017 in Delhi NCR Perch Service Apartment has set up a professional asset management firm in Delhi NCR The cost of buying a serviced apartment in India

An average cost in a metro would be (Delhi NCR, Mumbai, and Bangalore)

Land cost – 60% Jahlani Tavai Lions Jersey , construction cost – 40%. Average price of 1 BHK = USD 150,000 – USD 200,000

Average cost in a non-metro would be

Land cost – 30%, construction cost – 70%. Average price of 1 BHK = USD 75 T.J. Hockenson Lions Jersey ,000 – USD 150,000 Running costs of a commercial chain Scale – There are benefits to having multiple apartments in one complex as well as having multiple locations. The operational costs reduce dramatically with scale – employee cost mainly. Branding – Branding offers apartments to charge premiums as well as the “network effect” of having a larger inventory on their books. Location – Serviced Apartments, not surprisingly, do well close to commercial and holiday destinations. They are better suited to locations where there many companies like in an SEZ or a commercial park Kenny Golladay Lions Jersey , medical centre etc. Type – The type varies dramatically with the end user requirement. The choice between 1 BHK and 2 BHK is made looking at the end user profile – tourist, family, long stay? What are the return on investment?

The revenue model for an average apartment depends highly on the above factors. But the revenue from a USD 100,000 apartment can be in the range of USD 10 Jarrad Davis Lions Jersey ,000-USD 15,000. That is a “gross” return of 12-15% per annum. Keep in mind that better service apartment can make returns of upto 20% gross per annum.


Now the important part – getting to the net return. The major operating costs are employee and utility cost (electricity, property taxes, maintenance). These can safely be assumed to be 5-7% (being conservative). Hence the net returns will not exceed 8% per annum after costs. But given that current rental yields are only 2% after cost Kerryon Johnson Lions Jersey , that’s a healthy 6%!


The big variable in whether you earn 10% gross or 20% plus is the marketing & sales, which can be a fairly tricky affair. Marketing costs are going up every year and the only way that one ensure a healthy rental yield is by having an effective marketing team – which is why going with centralized providers makes a lot of sense. There are a few professional asset management firms that can help maximize the returns from your investment. It substantially reduces the overheads of managing other complex aspects of the business like guest relations & facility management.?


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