Planning to buy a second home? Consider buying a hotel room and get rent too

If you are planning to buy a second home, you could consider buying a unit in a condo hotel.

Condo hotels, a relatively new concept in India, allow buyers to own a hotel room. The owner is entitled to 21 to 60 days of use of the room in a year, and the hotel management uses the rest of the time to generate revenues from tenants. The rental proceeds are split between the owner and the hotel chain.

It's different from a vacation timeshare, where you don't own an entire room and you are not entitled to a share of the profits. You are only entitled to use any of the rooms in the hotel chain for typically a week.

Many condo hotels across the world are managed by luxury hotel brands like Marriott and Four Seasons . They offer a host of amenities and buyers share the cost of upkeep by way of annual maintenance fees.

In India, some local players are exploring the condo hotel concept. Tuscany Terraces, owned by hospitality player Silvexity Group, has sold 100 units on the condo model at their property in Neral, 80 kms from Mumbai. The resort has sold a hotel room of 691 sft for Rs 28 lakh, and a 1,100 sft room for Rs 46 lakh. "We operate on a fixed rental model with assured return on clients' capital," said Amod Kumar Singh, VP at Silvexity.

Mohili Meadows, part of Cinnamon Holidays, is selling studios, 1 BHK and duplexes in its resort property in Karjat near Mumbai. Properties vary from 553 sft to 2,375 sft and starts at Rs 17.37 lakh. The demand for condo hotels is emerging in places like Lonavala and Alibaug, which are big markets for second homes.

"Hospitality players are looking at raising equity from individuals and condos provide that option. It's financially feasible especially when private equity money is expensive. Typically, hotel properties give higher yields, about 20% over time, than commercial properties," said Anand Narayanan, national director - residential at property consultancy Knight Frank India.

B S Rathor, chairman of All India Resort Development Association (AIRDA), calls condo hotels a "product extension in the vacation ownership space" . He said a comprehensive legal framework needs to be drafted for such products, indicating that it could otherwise lead to legal issues.

Since condo hotels are a nascent phenomenon, there are challenges such as the absence of a resale market and higher operational risks.