What the trend says? Raj Sahni, RSG Properties
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 influx of tourists and corporate arrivals who bring a new gamut of requirements with them. One 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 fulfils 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 fills a critical gap in the existing market. On an average, a regular non-native office 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.
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 flexibility 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 fine 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 profile in the GCC region is also skewed towards families who prefer hotel apartments that allow a more intimate and convenient setting than individual rooms.
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 inflow 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 realizing 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 UAE, India, Pakistan, and Europe who recognise an unequivocal return on their money. The model allows the investors an assured profit, 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 predefined terms, thus adding that elusive cherry on top in real estate. The move not only diversifies their portfolio, but due to the high demand, offers a rare opportunity for a definite 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.
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 specific 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 fluctuating 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 firmly looking at a steep ascent, the segment seems set to expand in the coming years.