Alternative Investment – Indian Real Estate Market.
Though the hotel as a class of investment is old idea but its picking its importance in the new economy with more demand for as as a investment class due overland exploration and urban growth, entrepreneurs around the world have dived into hotel ownership. They sensed the potential, economic opportunity, purpose, growing markets and prestige. In the modern hospitality industry, not too much has changed. So what are the important reasons for considering the hotel investment? Some reasons to Invest in Hotel Industry in India. There are lot of Opportunities to Invest in Hotel Industry in India
1. Financial Reasons for Hotel Investment
Financial returns rank high among reasons for hotel investment. That may be high income from the hotel’s operating cash flow, especially if they have long-term ownership intentions. Many independent hotels, motels and resorts prioritize getting cash returns – especially family run hotels with their ‘heirloom’ assets. On average, owners can achieve cashflow returns of 8% to 10% per year, or higher based on their hotel business plan.
Some owners favor returns via increasing the hotel’s capital value. They might have short or medium term holding period intentions. Naturally, by increasing the cash-flow level from operations along with land value increases, an owner can make substantial capital gains and grow personal equity. Hotel appreciation often mirrors inflation – 2% to 5% for many countries. Returns can be volatile, with bad years cycling 10% up and down.
As you can deduct depreciation for hotel real estate and property, tax efficiency is an important reason for hotel investment. Think of the range of physical property in a hotel – buildings, engineering infrastructure, furniture, fittings and equipment. Depreciation doesn’t reduce cash flow but it’s a non-cash expense and reduces taxable income.
Real estate assets (including hotels) are excellent inflation hedges – an important reason for hotel investment. Over long periods, hotel property often appreciates with inflation.
Attracting revenues fees is another reason for hotel investment.
- Development Fees
- Hotel Management
- Asset Management
By sourcing and managing a hotel acquisition deal from start-up stages into sustainable occupancy, owners can accrue development fees. Using a propco (property company) and opco (operating company) structure, owner-operators can charge and expense management fees. If you’re managing for others, you can earn asset management fees.
These revenue reasons for hotel investment are very important to hotel developers and hotel operators. They may acquire and renovate assets, then exit with a management (or franchise) contract attached to the sale.
2. Other Reasons for Hotel Investment
While not a direct financial reason for hotel investment, diversification of investments is important. Hotel asset performance is not correlated with share market indexes. Many investors practice risk management and demand risk reduction across their portfolios using real estate, including hotels. It’s a protection based reason for hotel investment.
As buying hotel real estate allows a fast and substantial deployment of your capital, it’s another reason for hotel investment. Hotel asset values can typically push into high 7, 8 and even 9 figure sums. You’d instantly shift the market and raise prices if investing such figures in share transactions. Owners also protect via currency diversification.
Hoteliers normally demand decision-making control of their asset. They can’t, at least normally, acquire that control when investing in shares or managed funds. Holding day-to-day control and accountability, especially for independent hoteliers and family run properties, is an advantageous reason for hotel ownership. It adds ‘asset accountability’.
Invest in Hotel Industry in India
Considering the above reasons, it’s better to Invest in Hotel Industry in India .Looking back at early 2000 of Indian real estate, it was more of the unorganized sector. In the initial stage, the real estate was very cheap compared to the global market. It was less attractive due to the lack of cash inflow in the sector. As foreign investment started pouring in with new opportunities in Indian growth story things changed forever, Since then it never looked back, the returns of the real estate sector from 2004 to 2012 were all-time high with a high valuation. As the valuation increased in comparison to the global market, the sector suddenly inaccessible to the middle-class segment. But one thing remained consistent, still, the majority of the sector is unorganized with more cash deals common at the ground level.