Managing branded residences

As the country’s largest hospitality player, IHCL has been instrumental in shaping India’s hospitality landscape. Puneet Chhatwal, CEO & MD, IHCL, explains what drove the company to diversify into branded residences and now branded villas. “We have been into branded residences and done a few projects, but branded villas is the first one. As the country gets richer and the GDP grows, you start having a second home, third home, and so on. It’s a part of the investment, but you do not want the headache of managing the home, the security and other things. So when you go there, you have all the facilities available and when you are not there, you might want to get some rental income out of it. This is approximately the model that works globally and also in India.

“This has happened across the globe and it was 10-20 years overdue in India. Certain attempts were made in similar areas outside of Mumbai, but now I think it's time that it is going to take off in a very big way. And people would believe in this if they have a very strong brand. And if the brand belongs to a very strong group that you can trust, then people would invest and people would like to partner with them because it’s a connection which is there over the generations.”

IHCL is proud that every partner involved in the project is strong, notes Chhatwal, from Amavi, with its decades of hospitality experience, to Sotheby’s and ASK Property. “If we can collectively benefit from a culture of collaboration, then why not do it? For me, it’s just a diversified and a normal evolution of the brand Taj, where it stands today after 123 years of operation.”

Real estate remains the largest investable asset class for Indians, particularly in North India, and the appetite for second homes and leisure properties is increasingly spreading across the country.

For Amavi, the proposition is about taking away the responsibilities traditionally associated with owning a second home. Apurv Kumar, MD, Clarks Group and Founder, Amavi, explains: “Second homes are bought to create more time with family, time in nature and time for oneself. Yet too often, they become another responsibility. At Amavi, our purpose is to change that. Taj Mount Kusur Resort and Villas brings together the privacy and permanence of a home with the care and service of Taj hospitality. Rooted in the Western Ghats, it reflects Amavi’s belief that meaningful development must respect the land and create value for the communities around it. We want Mount Kusur to be not merely a property people own, but a place they return to, belong to and come to.”

For investors, the strength of the brand and the assurance of professional hospitality and property management were key considerations. Amit Bhagat, CEO & MD, ASK Property, agrees. “Anyone who is a second home buyer becomes a seller of the property after three years. Inability to maintain, give the same experience. Gated secured community hospitality back was a gap. And that’s how Sotheby’s and ASK Property came together to raise the fund. As we create wealth from 4 trillion to 6-10 trillion, we will see this more and more in demand.”

India’s branded villa market

Ashwin Chadha, CEO, Sotheby’s, agrees that India’s ultra-HNIs and HNIs are receptive to branded residences. “I would say about maybe 8-10 years back, there were just a handful of global brands trying to make their way into India. But today, if you see not just global but very large domestic hospitality brands, fashion brands, automobile brands making a beeline for branded residences in India.”

India’s HNI and UHNI base is growing rapidly, he says. “I was reading somewhere that we are the third largest country in the world as far as ultra high net worth billionaires are concerned, only after the US and China. And this has all happened in the last ten years. And the caveat here really is don’t just go with just because there’s a brand on the door. You need to delve a little deeper and see what the project is about. As the brand talked about their professional operations, hospitality, property management being provided. All of these things help the project to evolve. And while our estimates say that you could charge about 10-15% premium as branded residences, I saw a slide which mentioned 20-30%.”

The bigger question is what the segment could look like over the next five years. Kumar believes it has entered a market where there is still significant room for growth. “We have actually come into a sweet spot where India was missing. So we are in the space of what we would like to ask about the vision. Now, the vision is to have the highest brand recall for managed luxury residences. In the next 3-5 years, we will be deploying about 300 crores and the top line of our company will be 5,000 crore in the next five years.”

Branded villas could eventually move beyond established leisure markets and into Tier II locations. As Chhatwal says: “Lonavala is a metro, so it is kind of a branded villas will obviously come in more leisurely locations which are not densely populated, but are very accessible from densely populated locations, so that it’s like not more than two hours of driving distance, as was demonstrated from the Navi Mumbai International Airport or from Pune.”

Location, therefore, becomes as important as the brand. Mount Kusur is positioned as a getaway that offers proximity to Mumbai and Pune while providing an immersive natural setting in the Western Ghats.

How big is the market?

Sotheby’s, with its international luxury real estate presence and experience selling homes in Goa and other second-home destinations, has a front-row view of the market. But how deep is the opportunity today?

According to Chadha, the opportunity is less about putting a number on the market and more about understanding the evolution of the Indian luxury buyer. “I think it’s not about the size and I would not like to go and address it mathematically. Conceptually, after having acquired whether it is HNI, UHNI, or a dollar billionaire, after having acquired a primary residence in the place of their choice, the most natural step is to acquire a second home. And you know they are looking at something more than just brick and mortar, a concept, an asset which has got some element of rarity in it, in a location which is unexplored, coupled with the entire software gamut that a brand like Taj brings.”

He says Mount Kusur is a living example of a property that is, from the perspective of being a hospitality location or residential area, in the middle of nowhere. With the concept Amavi has brought in, complemented by Taj, the aim is to create an ecosystem of its own.

Chhatwal is even more bullish about the runway ahead. “It’s just at the beginning. It’s like a pre-infancy phase, then it will come into growth and maturity. So I think we will have a run for at least 25 years. If Viksit Bharat 30 trillion is true, 10% of that is going to come from tourism and hospitality. And if another 10% or 5% comes from branded residences, then we are talking of a very big number. So that’s why I said we have not even started.”

The NRI opportunity

Another potential driver of the market could be Indian capital living outside India. Chhatwal points out that India’s restrictions on foreign ownership of residential property have historically limited international participation, but believes the Indian diaspora could represent a significant opportunity.

“We are just scratching the surface considering that India is the only country where foreigners cannot buy residential properties and that is the advantage. So many Indians have become foreigners that this too shall change. It’s not going to stay like this. What we call the Indian Diaspora and a lot of high performance Indians. Now we are coming up with schemes and if they invest money in India, they get and they are living outside, they get a very high rate as done by the government to attract foreign exchange. Why would that not change in real estate?”

He adds: “So the best is yet to come. That the foreign capital will not only come from foreign born foreigners, but could also come from Indian nationals living outside India.”

He also sees the economics of branded second homes as an important part of the proposition. “Previously, the mortgage used to be a percent or 2%. And we have the advantage because they are not great. Rates are very low and the rental units are high. But if today you go to New York, you will see that the mortgage rate is 5-6 and the rental units are three. So all people who are buying outside, they can see the inherent advantage. And with this combination, what Amavi is offering to all the end customers is not only a real estate product, because you pay GST and then stamp duty and then you have to pay maintenance. It is actually an income yielding asset, which is because of the Taj branding and maintenance and hospitality. It becomes an income building, a second home for all of us and that is the unique proposition.”

It will be difficult to better what Amavi has created, asserts Bhagat. “Taj Mount Kusur beautifully underscores the location advantage of the first branded Taj Villas. It is just a 15-minute helicopter ride from Juhu airport and a two-hour drive away. You have a lakeview, a valley view and a hillview, created by professionals who are different in this industry and have spent almost 25 years in real estate development. You have the hospitality standards of founders with deep experience in the sector, backed by Sotheby’s, which has invested in the project. It is an income-generating asset, and so you will see many more coming from Amavi over the next one year.”

Amavi goes well beyond the conventional vocabulary of real estate. “I don’t look at it in the way real estate is traditionally looked at. Sometimes I wonder whether I am in the real estate space or whether I am selling happiness and well-being. These are breathing villas. When you enter a villa, it has the temperature you desire, the thread count of the bedsheet, the pillow, the nutrition, your cats, your dogs—and everybody is taken care of the way you want. The whole organism evolves with you,” sums up Kumar.