Serviced accommodations, a recent addition to the “commercial real estate” category, are gaining traction as an appealing investment opportunity. These furnished accommodations offer kitchen facilities and more spacious rooms compared to hotels, providing flexibility and essential communication amenities.
This investment avenue is gaining popularity due to favorable returns and reduced risks. Major Indian cities like Delhi, Mumbai, Pune, Chennai, Bangalore, and Hyderabad host serviced accommodations, while smaller cities like Surat and Vizag also embrace this trend. Corporate clients often opt for these accommodations to house their employees, and even expatriates on short- to medium-term assignments in India find them suitable. Let’s delve into the investment and upkeep aspects of serviced accommodations.
1. Rental Returns:
Investing in serviced accommodations presents alluring rental returns, ranging from 8% to 14%. These accommodations also boast capital appreciation potential. In comparison, residential property rental yields linger at a mere 3% to 4%. Room rates, varying based on location and clientele, can command between Rs 3000 to Rs 10,000 per night.
The surge in companies providing ‘serviced accommodations’ as a service has grown. Residential property owners can entrust their properties to these companies for operation as serviced accommodations, should self-operation not be preferred. These companies typically levy a fee of 15% to 20% on the per-night charges or earnings. Real estate firms managing serviced accommodations even offer investors a secure 14% guaranteed return on their property investment.
2. Necessary Permits
Given its commercial nature, operating a serviced accommodation mandates specific permits. When the property is situated within a designated residential zone, obtaining a No Objection Certificate (NOC) from the society is essential. A police permit is a prerequisite, along with the approval of the municipal authority. Should a communal kitchen be present in the serviced accommodations, securing a restaurant license becomes imperative. Additionally, adhering to fire safety regulations is indispensable, requiring appropriate permission.
3. Prominent Hospitality Brands in the Serviced Accommodations Sector:
Several prominent hospitality chains have ventured into the realm of offering serviced accommodations. Renowned names like Grand Hyatt and Marriott International have established their serviced accommodations across various cities in India. Hotel Leela Venture and Hilton Hotels have also ventured into this domain. Furthermore, numerous enterprises engage in operating serviced accommodations by utilizing residential properties. Property owners can opt to entrust their residential spaces to such companies, which in turn manage the property as serviced accommodations, earning a commission for their services.
How to set up serviced accommodation:
- Appropriate mortgage: Avoid using buy-to-let or standard mortgages for serviced accommodations, as this could breach lender terms.
- Rental permission: Review your lease for consent to operate short-term lets.
- Tailored insurance: Specialised coverage is necessary, which we’ll explore further below, to adequately protect your serviced accommodation.
- Planning permission: Consult your local council for regulations regarding serviced accommodation, encompassing rental duration limits and potential change of use requirements to avoid hefty fines.
Furthermore, you must fully furnish the property, guarantee utilities, including WiFi, are operational, and arrange services such as cleaning and laundry. If you’re available and nearby, you might manage these aspects yourself, albeit with an almost 24/7 availability requirement for issue resolution. Alternatively, professional companies can oversee property management, guest services, and more, albeit at an additional cost.
What insurance do I need for a serviced accommodation?
Having the appropriate specialist insurance for your serviced accommodation is essential, as some coverage is specific to these policies. Selecting the wrong policy, such as buy-to-let or standard home insurance, can result in coverage gaps or policy invalidation if the insurer is unaware or doesn’t fully grasp the property’s usage.
For instance, having an unsuitable policy for serviced accommodation could result in:
- insufficient employers’ liability coverage, obligatory when employing individuals related to the property;
- limited or no loss of income coverage;
- absence of theft by guests coverage, unlike standard landlord or household policies that necessitate evidence of forced and violent entry or exit.
For occasional short-term renting of your main residence, some insurers may offer a short-stay extension to your home insurance. However, if the property is consistently let, a tailored serviced accommodation policy is imperative.
What is covered under a serviced accommodation insurance policy?
Serviced accommodation insurance shares parallels with holiday home insurance, extending to encompass individual flats, flat complexes, houses, and even unconventional short-term rentals like converted shepherd’s huts.
Beyond safeguarding structures, contents, and property owner’s liability, Alan Boswell Group’s serviced accommodation insurance extends coverage to:
- employers’ liability;
- optional extra for pet-related damage;
- business interruption, which includes loss of rent from confirmed bookings and anticipated income based on booking history and seasonal variations;
- rent-to-rent agreements;
- coverage for theft and deliberate damage caused by guests;
- periods when the property remains unoccupied, ranging from 30 to 45 days multiple times within the year.