Running a Serviced Apartment – Great returns yet is it worth the effort?

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Post By By Buniyad

06/18/2015

In today’s context, if you own more than one residential property in a city, in that case you can live in one whereas the other becomes the medium of generating income. Though how much you earn totally depends on how much you choose to let the property out. You could probably opt to give it on lease, run it as a paying guest accommodation or operate it as a serviced apartment. It is the last category that is getting the fancy of home owners. The returns are good but are it worth the money genuinely?

And the biggest problem is getting permission to run a commercial activity in a residential building. You definitely require a good rapport with your society members. Extremely few number of residential societies that allow serviced apartments,” says Sajan Abraham, who himself runs six serviced apartments in a single complex in Mumbai.

NOC from the society, a police nod is required. The permission from the municipal authorities is a must factor. And for a cluster of apartments, more approvals are necessitated for fire safety & a restaurant licence to run a common kitchen is also needed. And once all the permits are sorted and in place the process of kitting out the premises begin. Anuj Kumar (name changed), who let out his 1000 sqft apartment in Powai, Mumbai in 2014, spent Rs.8 lakh doing it up. However, he wished to let out his house as a paying guest accommodation, the idea of dealing with individual tenants proved a turn-off.

Serviced apartments are dealt at par with three-star hotels and should boast similar amenities too. Cots with mattresses, wardrobes, fitted kitchen, air conditioners, refrigerator, washing machine and television with cable connection are a given. A wifi connection is also important,” says Sanjay Chugh, Head, Residential Services (Chennai), JLL India. A cook, laundry facilities, picks up and drop, round-the-clock chauffeur, car parking, swimming pool, gym and clubhouse can be provided at additional cost.

How do the Options tally?

Serviced Apartment Paying Guest Accommodation Let Out to a Family
Amenities : kitchen, housekeeping, cook, white goods, bedroom choices, wifi, printer/scanner, laundry service, parking, centralized security Amenities Needed : Two double beds/four single beds four cupboards, fully equipped kitchen, television, refrigerator Amenities Needed: Can be given unfurnished also, A fresh coat of paint, fans, lights, regulators & geysers are all essential. Also, plumbing should be good in condition.
Initial cost – Rs. 7-12.50 L

Expected income – Rs. 7000-10000 a night

Initial cost – Rs. 80000-90000

Expected income – Rs. 65000-84000 a month

Initial cost – Rs. 75000-87000

Expected income – Rs. 45000-50000 a month

The above figures are estimated for a 2 BHK apartment in the heart of a metro city.

If in case an intermediary (serviced apartment operator) is involved, then additional facilities are pretty much easy to facilitate. As a matter of fact, the operators does prefer a cluster of houses in a single society or area, which further helps in accommodating common amenities to all. And Chugh prefers the operator route. A third-party operator or an aggregator, who is specifically involved in promotion and securing clients and not the maintenance of the apartment and typically charges 15-20 per cent of the card rate as fee. On the off chance that the operator has done up the place and maintains it then he will give a fixed percentage to the flat owner (20-30 per cent). Though, the wear and tear of such properties is considerable. Consequently, as a result the maintenance cost is exorbitant. About 15-20 per cent of the annual income can go towards upkeep.

Shveta Jain, Executive Director (Residential Services) at Cushman & Wakefield says that the serviced apartment earns 10-15% ahead of that of the properties rented out to typical tenants. She further says, “Though this needs to be set off against the maintenance and other costs, the taxes one has to pay”.

Anuj earns Rs. 1 L a month after spending Rs. 8 L flat from his Powai apartment and he charges amount of Rs.3000 a guest per day.

Dev Anand, a service apartment operator in Chennai mentions that it usually takes three years to break even. He fixes monthly expenses at Rs.5000-7000 per apartment. “Usually a typical contract says a maximum of eight occupants can be kept in a 3BHK flat. The rent can be surged by approximately 10 per cent from the third year. Society maintenance charges have to be taken care of by the service operators,” he adds.

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