With the rise in corporate travel, the concept of serviced apartments has gained popularity, especially in metro cities and larger tier-2 cities. The National Capital Region (NCR) is known for its thriving commercial hubs, mainly in Gurgaon and Noida, which attract corporate professionals and business visitors. In recent years, there has been a notable increase in the demand and supply of serviced apartments in NCR. While classified under commercial real estate, serviced apartments provide everything a residential property would offer. These include fully air-conditioned rooms, modular kitchens, pantry and laundry facilities, power back-up and professional concierge services within the premises.
This segment has emerged, owing to the demand for furnished rooms from business travellers and the young workforce coming into the metro. Consequently, development firms are focusing on increasing their sales in this segment.
What are serviced apartments?
Service apartments are a category of commercial properties, which are designed like residential units. The apartments are fully furnished with essential facilities, including furniture, Wi-Fi, etc. and housekeeping services.
Factors driving demand for serviced apartments
- Rise in corporate travel: The rise in business travel in India has led to an increased demand for serviced apartments among working professionals. The number of young corporate workers, including millennials and Gen Zs are higher in this category.
- Growth of real estate investors: An increasing number of people choose to buy property with the aim of gaining rental returns. For these investors, serviced apartments seem to be a profitable option, which is a key reason for the rising demand.
- Emergence of medical tourism: Serviced apartments are a sought-after option for people travelling to other cities for medical treatment. Such apartments prove to be affordable and convenient for families planning to stay in another city for an extended period.
Pros and cons of choosing serviced apartments
For owners, these apartments serve as profitable assets that can be leased out. The rental yield is decent, as compared to the rent for an average hotel room. Moreover, the owner can rent it out to different types of tenants, including business travellers, travellers on vacation, or to young individuals working in the neighbouring regions.
In India, the general rental yield from a residential property, ranges between 3% and 5%. In comparison to this, the capital appreciation on properties in the NCR is over 10%-12%, annually. The current rent in an upmarket locality of the NCR, ranges from Rs 25,000 to over Rs one lakh per month, with the higher prices being commanded by the bigger apartments.
However, the initial investment rates are higher for serviced apartments. For example, the sale price of a serviced apartment along the Noida-Greater Noida Expressway, is around Rs 12,000 to Rs 15,000 per sq ft. On the other hand, a regular, bare-shell apartment on the same stretch will cost Rs 7,000 to Rs 10,000 per sq ft. Another grey area in this segment, pertains to maintenance and services. While a few developers have tied up with professional firms or hotels, for services, others are simply providing the amenities in their projects and leaving it to the buyers to take care of all the maintenance.
Strong secondary market
Compared to the primary market, the secondary market in the NCR is robust. Old areas of Delhi, where one can see redevelopment projects, now have such serviced apartments. Areas of south Delhi, west Delhi, Dwarka and the new sectors in Noida and Gurgaon too, offer such apartments. The costs of these apartments vary, depending on the location. A 1-BHK, 600-700 sq ft apartment in the upmarket south Delhi, can cost anywhere between Rs 50,000 to Rs one crore.
Who should invest in serviced apartments?
Buyers with extra cash can invest in this rentable asset in established areas. Nevertheless, risks exist. So, due-diligence must be done before investing in any property. Buyers who may have to set up their base in the metro, for business reasons, may find the investment profitable. Alternatively, they can rent out when not occupying the property. For other buyers, including first-time home buyers, investing in regular apartments is better than opting for serviced apartments in the same area.
