COM­MENT

Raj Sahni, owner and chair­man of RSG Prop­er­ties, dis­cusses the ris­ing trend of res­i­den­tial build­ings vs ho­tel apart­ments in the re­gion

Construction BusinessNews Middle East - - Contents -

RSG’S RAJ SAHNI TALKS ABOUT THE RIS­ING TREND OF RES­I­DEN­TIAL VS HO­TEL APART­MENTS IN THE RE­GION

Real es­tate in the UAE has al­ways been more about be­ing a class as­set than a mere hold­ing. Cater­ing to both the na­tive as well as for­eign pop­u­la­tion, it has evolved from its pri­mary func­tion. The hos­pi­tal­ity in­dus­try is par­tic­u­larly sus­cep­ti­ble to the in­mux of tourists and cor­po­rate ar­rivals who bring a new gamut of re­quire­ments with them. /ne such trend to emerge in re­cent times is the in­crease in num­ber of ho­tel apart­ments. While it may sound like an oxy­moron, it has un­doubt­edly blurred the dis­tinct line be­tween res­i­den­tial build­ings and ho­tels. A ho­tel apart­ment in­deed ful­lls the adage of @home away from home’ and has be­come the new favourite amongst both prop­erty de­vel­op­ers and vis­i­tors. The mar­ket has been pro­pelled by tourists as well as in­vestors look­ing for turnkey in­vest­ment av­enues.

WHAT IS TRENDING?

The surge has been partly fu­elled by the Expo 2020, but it also llls a crit­i­cal gap in the ex­ist­ing mar­ket. /n an av­er­age, a reg­u­lar non-na­tive oflce goer may be earn­ing more than his peers back home but is faced with high rental rates as com­pared to other mar­kets. In ad­di­tion to that, most hous­ing units have a lease that lasts at least a year, and this is when we have not even con­sid­ered the work­ing hours spent on the ac­tual hunt­ing of a house. In such a sce­nario, ho­tel apart­ments step-in to pro­vide respite to the enor­mous in­com­ing pop­u­la­tion. We can Quote num­bers to ad­judge which seg­ment is get­ting an inch ahead, but in re­al­ity, the sit­u­a­tion is not so lu­cid. The res­i­den­tial mar­kets are show­ing no signs of fa­tigue while the ho­tel apart­ments are still in their nascent stage. The lat­ter has yet to es­tab­lish its worth to both in­vestors and the pub­lic in the long run.

Res­i­den­tial units will set you back due to high rents alone. On the other hand, ho­tel apart­ments, though priced slightly on a higher side, serve you with ex­tra ser­vices at ab­so­lutely no in­vest­ment on the res­i­dent’s part.

NEXT MILE­STONE

A ho­tel apart­ment, in its bare ba­sics, is an apart­ment that pro­vides the aux­il­iary ser­vices of a ho­tel such as room ser­vice, clean­ing ser­vices, and prob­a­bly the most cov­eted, park­ing fa­cil­ity. They al­low for monthly or an­nual pay-outs with some even of­fer­ing pay­ments in in­stal­ments. The real al­lure of the ho­tel apart­ment is the rent. The same rent might fetch you a two-bed­room apart­ment in the city with no fa­cil­i­ties, un­pre­dictable rent hikes, a bind­ing lease and a high util­ity bill. A ho­tel apart­ment, on the other hand, not only of­fers ser­vices to make your stay com­fort­able but also saves you the util­ity bill, fur­ni­ture in­vest­ments, and even gives you mex­i­bil­ity in pay­ments.

To truly ap­pre­ci­ate the con­trast, con­sider the av­er­age rent of both es­tab­lish­ments. Res­i­den­tial units will set you back due to high rents alone. On the other hand, ho­tel apart­ments, though priced slightly on a higher side, serve you with ex­tra ser­vices at ab­so­lutely no in­vest­ment on the res­i­dent’s part. It’s not hard to see why ho­tel apart­ments seem to be the next mile­stone in the GCC’S real es­tate seg­ment with them be­ing tai­lor-made for the large tran­sient pop­u­la­tion. Un­like vis­i­tors else­where, there are a large num­ber of cor­po­rate vis­i­tors who toe the lne line be­tween tourists and city-dwellers. They are here for as­sign­ments that ex­ceed a year but are not look­ing to set up their base here, and ho­tel apart­ments are an ap­pro­pri­ate so­lu­tion. The tourist pro­lle in the GCC re­gion is also skewed to­wards fam­i­lies who pre­fer ho­tel apart­ments

that al­low a more in­ti­mate and con­ve­nient set­ting than in­di­vid­ual rooms.

ECO­NOM­I­CALLY SPEAK­ING

There is no deny­ing that de­spite the trend lean­ing to­wards ho­tel apart­ments, the tra­di­tional hous­ing struc­ture still stands strong. While the pure com­mer­cials of rent­ing a unit may break even the cost of a ho­tel apart­ment, one can­not deny that it is the re­cur­ring costs of util­i­ties, fur­nish­ings, and main­te­nance that tips the scales in favour of the lat­ter. The tally does not in­clude other rental ex­penses such as bro­ker­age, se­cu­rity de­posits, and gov­ern­ment reg­is­tra­tion ex­penses. Need­less to say, rent is not the only eco­nomic con­sid­er­a­tion for a res­i­dent. With Dubai ex­pe­ri­enc­ing an ex­po­nen­tial rise in the in­mow of for­eign na­tion­als look­ing to rent in the city, the de­mand is fast out­weigh­ing the sup­ply of res­i­den­tial hous­ing op­tions. Hence, the rental costs show no signs of de­creas­ing in the near fu­ture. The ho­tel apart­ments, on the other hand, are steadily in­creas­ing in num­ber with the in­dus­try re­al­is­ing this gap­ing hole in the mar­ket. The in­crease will be fur­ther ex­pe­dited due to the Expo 2020 for which the hos­pi­tal­ity in­dus­try is rig­or­ously pre­par­ing for.

MIN­I­MUM RISK, MAX­I­MUM RE­TURN

Ho­tel apart­ments are ad­di­tion­ally be­com­ing the new favoured in­vest­ment so­lu­tion among the high net worth in­di­vid­u­als (HNWIS). The in­vestor pool is see­ing ad­di­tions pri­mar­ily from the UAE, In­dia, Pak­istan, and Europe, who recog­nise an un­equiv­o­cal re­turn on their money. The model al­lows the in­vestors an as­sured prolt, no man­age­rial com­mit­ment, and owing to ho­tel apart­ments en­ter­ing into long term con­tracts, they en­sure sta­bil­ity of re­turns as well. Some projects even al­low the in­vestors to stay in the prop­erty ac­cord­ing to pre­delned terms, thus adding that elu­sive cherry on top in real es­tate. The move not only di­ver­siles their port­fo­lio, but due to the high de­mand, of­fers a rare op- por­tu­nity for a del­nite re­turn on their in­vest­ment. In the run-up to the Expo 2020, the hos­pi­tal­ity seg­ment will see a colos­sal ex­pan­sion of its units to cater to the es­ti­mated 20-25 mil­lion vis­i­tors that it will at­tract. With the soar­ing de­mand, we can prog­nos­ti­cate that the seg­ment is not likely to dwin­dle on its cur­rent tra­jec­tory ei­ther.

SCAL­ING UP

The UAE hos­pi­tal­ity, with Dubai in par­tic­u­lar, is not known for be­ing aus­tere. The in­dus­try has been rein­vent­ing lux­ury and is known for pro­vid­ing un­par­al­leled ex­pe­ri­ences. Es­tab­lished names in lux­ury liv­ing have be­gun mak­ing a foray into this seg­ment. The de­mand is driven by both the reg­u­lar busi­ness trav­ellers and by those de­sirous of hav­ing a va­ca­tion spot in the re­gion. In fact, there is paucity in this specilc seg­ment of branded names with re­ports sug­gest­ing that in some es­tab­lished ar­eas of the city, very few of the ho­tel apart­ments are owned or man­aged by re­puted names. The schema will un­dergo a sub­stan­tial change with many high-end brands in both con­struc­tion and ho­tel man­age­ment an­nounc­ing projects to cater to the de­mand.

With the in­un­da­tion of long-term vis­i­tors and in­vestors, one can safely pre­dict that ho­tel apart­ments will cause an up­heaval in the realty blend. The surge is de­mand driven and is be­ing ap­pro­pri­ately com­pli­mented by a cor­re­spond­ing rise in sup­ply by both prop­erty de­vel­op­ers and in­vestors. A model such as this al­lows them to not bank on the muc­tu­at­ing oc­cu­pancy rate as they rely on con­trac­tual leas­ing of the units and as such keeps them in­su­lated from the un­cer­tain­ties of the mar­ket. With longer stay du­ra­tions, comes a sta­bil­ity that is per­haps its most promis­ing fea­ture for the in­vestors. No­tably, in the case of Dubai, the de­mand is not likely to see a fall as it has ce­mented its po­si­tion as a leisure and busi­ness hub. With both sides of the mar­ket lrmly look­ing at a steep as­cent, the seg­ment seems set to ex­pand in the com­ing years.

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