In India the second home/vacation home market is in early stages of development. Most second home owners are a dissatisfied lot, being sold properties which they find difficult to maintain and with very little opportunities for appreciation.
Thus for most second home locations , a condo hotel is an ideal WIN-WIN for the second home buyer , the developer and the hotel buyer.
Taking account of the increase in luxury second home residential development, seasonal nature of hospitality revenues and also with a view to develop a fairly differentiated product it is imperative to introduce the concept of a condo-hotel to the Indian market. This option entails development of a condo-hotel, wherein the hotel rooms are owned by individual owners/investors and are leased to the developer for the purpose of running a hotel in lieu of agreed fees/profit share.
The Value Proposition for Condo Unit Owner/Buyer
The primary purpose the Condo is brought by the owner is real estate ownership of luxury second homes. There is also a bait of possible real estate appreciation. Condo hotels are an attractive option since maintaining & ensuring luxury amenities in usual second homes is a big hassle.
The unit holder has the option of participating in the rental programme or not. This defrays the cost of ownership.
- Apart from capital appreciation, the owners (depending on lease terms and conditions) also tend to make a reasonable rental yield (say 2-3%) from their properties.
- Unlike most villas & gated development, which resemble a ghost-house for most of the year, this development provides the owners a buzzing & cheerful destination.
- Most second home owners realize that they end up going to their second homes far less frequently then they had envisioned. They also find maintenance and house-keeping of their second homes to be quite problematic. With first class house-keeping services and flexible lease arrangements, this development provides the owners the best of both worlds.
The Business Proposition for the Developer
A condo hotel developer can realize a substantial return on investment much earlier, because the sales of the units usually close around the time the hotel opens for business. Additionally, the condo hotel developer has access to an additional source of secured financing: the pool of lenders that provide financing for traditional condominium development. This added source of capital can reduce lending costs. Condo hotels also provide the developer the opportunity to obtain a return of equity earlier than would be available in a traditional hotel development.
For the developer this considerably reduces the risk of high fixed cost that a plain vanilla hotel project entails. By selling off ownerships in the hotel in a preconstruction phase, developers are also able to more easily acquire favourable construction financing from bank. The developer typically retains control of common areas, restaurant etc.
The condo units world-wide sell for a premium over “regular” condos ranging from 15% -40% per square foot due to the services provided to the condo hotel owner that are inherent in being part of a hotel operation such as housekeeping, maintenance, and room service—as well as the uniqueness in design, sophistication, and overall product offering.
The developer should focus on the real estate, the luxury lifestyle, the hassle-free living and real estate appreciation possibilities. Marketing should be entirely real estate oriented with focus on the prestige/ego asset.The developer should downplay the subsequent rental programme and not raise high expectations of rental yield.
Gold Bird 