Post on 28-Jun-2020
INDIA REPORT
A C&W AND GROUP RCI PUBLICATION | January 2009
THE SPECTRUM OF LEISURE REAL ESTATE PRODUCTS IN INDIA
INDIA REPORT | JANUARY 2009 1
INDIAN HOSPITALITY
India's share in world arrivals currently stands at 0.5% and its share of tourism revenue worldwide is 1
1.11% . India's promotion as a tourist hub was a slow starter, but over the years the native tourism
industry has been growing consistently owing to the economic liberalization as well as initiatives
undertaken by the Ministry of Tourism on a central platform as well as individual state tourism bodies
on a regional platform. The Planning Commission recognized tourism as an industry in June 1982 and
since then, the growth in tourism has been phased out. With each subsequent Five Year Plan, the
growth plan has been refined and the simultaneous infrastructure development has aided this spurge.
The National Tourism Policy brought out by the Ministry of Tourism in 2002, positioned tourism
development as a national priority, focussed on enhancing and maintaining the competitiveness of
India as a tourist destination. It stressed on improving India's existing products and expanding these to
meet new market requirements. The launch of the 'Incredible India' campaign (2002) was a major
initiative by the Government of India, to promote the country as a tourist destination and it started
reaping positive results a couple of years post its launch. These initiatives have paid off as India is
CONTENTS EXECUTIVE SUMMARY
1 Executive Summary
2 Indian Hospitality
3 Alternate Products
4 Relevance of Each Product
to Key Stakeholders
5 Focus on Timeshare
6 Focus on Fractional
Ownership
7 Conclusion
There is no denying that the present global economic slow down
will impact the hotel development pipeline which is further likely
to enable absorption of supply into the market. However, the
underlying demand growth will be the true judge of this
absorption rate as in the current age of globalisation restoring
economic equilibrium is the prime concern of all countries. The
growing popularity of the leisure industry in the country today
has also facilitated alternative hotel product offerings to
strengthen their foothold in the market, particularly those with an
ownership model that strongly focus on making 'holidaying' a
habit. Amongst these include the traditional timeshare, fractional
ownership, along with the condo hotels and private residence
clubs products. The paper discusses these holiday models in
comparison to the pure hotel product, exploring their relevance
to key stake holders namely developers, operators as well as
consumers.
We hope to have been of substantial assistance to our readers.
1 World Tourism Organisation
The Spectrum of Leisure Real Estate Products in IndiaINDIA
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The Spectrum of Leisure Real Estate Products in India
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A C & W A N D R C I J O I N T P U B L I C A T I O N
considered as a popular destination on the world travel map today. Seen as a cultural hub with its fairs &
festivals all year round, it offers a variety of travel destinations ranging from spiritual centres to wildlife
sanctuaries, from snow capped mountains to balmy beaches.
INTERNATIONAL VISITOR TREND (IN MILLIONS)
0
1
2
3
4
5
6
2000 2001 2002 2003 2004 2005 2006 2007
Year
Vis
itors
(in
mill
ions)
Source: Ministry of Tourism
100
200
300
400
500
600
DOMESTIC VISITOR TREND (IN MILLIONS)
0
2000 2001 2002 2003 2004 2005 2006 2007
Year
Vis
itors
(in
mill
ions)
Source: Ministry of Tourism
A rapidly growing middle class, the advent of corporate incentive travel and the multinational
companies into India boosted prospects for tourism. India's easy visa rules, public freedoms and its
many attractions as an ancient civilisation makes tourism promotion easier than in many other
countries. Further, the country has been seen as a viable investment destination by the developed
economies for some years now. The consistent growth rate has attracted foreign investments, leading to
tremendous rise in business travel. The growth in arrivals also contributed to a significant increase in the
incoming tourist receipts, leading to a growth in the tourist economy of the nation.
The recent robust growth experienced by the country has stimulated considerable growth in the Indian
hospitality industry, particularly in relation to Average Occupancy Rates and room rates to an extent
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that rates quoted by hotels in some Indian destinations have resulted in deterring international and
domestic leisure demand.
With time, there has been a tremendous expansion in the type and quality of hotel products in the
market. New hotel brands have entered the country and existing players have either diversified their
portfolio or further established current operations, to suit market needs.
The hospitality market in India has witnessed positive growth in recent years, with the key cities of
Delhi, Mumbai, Chennai, Kolkata, Hyderabad, Bangalore, Pune and Goa experiencing considerable
increase in demand as well as supply of hotel rooms. ARRs in hotels across India have increased
remarkably over the past few years. In the face of the growing Indian economy and increasing business
travel there is an apparent shortage of quality hotel rooms which has pushed up the ARR, especially in
metro hotels where corporate travel accounts for 85-90 per cent of the hotels' total business. The steep
rise in room rates and strong occupancy level in city hotels are the prime drivers of investments in this
sector.
The major cities typically average approximately 75% occupancy across the country. Average
occupancy rates and the average room rates are relatively high for most tier 1 cities. This is a cumulative
outcome of the economical growth, improving infrastructure and emergence of more commercial
hubs (tier 2 cities). The industry will undergo metamorphosis with new brands coming in and the
segments being further distinguished.
The last two years have witnessed a number of plans on the hotel development front. However, our
research indicates that the proportion of announcements to plans proceeding and actual development
is not 100%. Key reasons for this include the inability to source land at the right price to make the
development formula feasible, delays in securing land in respect of land sourcing and transactions,
raising cost of debt, lower availability of funds for new projects and escalating construction cost to
name a few. These factors are likely to slow down, or in some cases cease hotel development.
There is no denying that the present global economic slow down will impact the hotel development
pipeline which is further likely to enable absorption of supply into the market. However, the underlying
demand growth will be the true judge of this absorption rate as in the current age of globalisation
restoring economic equilibrium is the prime concern of all countries.
The growing popularity of the leisure industry in the country today has also facilitated alternative hotel
product offerings to strengthen their foothold in the market, particularly those with an ownership
model that strongly focus on making 'holidaying' a habit. Amongst these include the traditional
timeshare and fractional ownership. These are popular holiday models internationally, along with the
condo hotels and private residence clubs products. These alternative models, in particular the timeshare
product, provides a degree of insulation to key stakeholders (including developers, operators and
consumers) compared to the pure hotel product. However, while the risk associated with the timeshare
The Spectrum of Leisure Real Estate Products in India
INDIA REPORT | JANUARY 2009 3
A C & W A N D R C I J O I N T P U B L I C A T I O N
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The Spectrum of Leisure Real Estate Products in India
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A C & W A N D R C I J O I N T P U B L I C A T I O N
product is lesser compared to the pure hotel product, the ability for the product to maximise returns
(from a developer's and operator's perspective) is relatively lower than the hotel product. Timeshare
found a place in the tourism policy of India in the year 2001 and the Ministry of Tourism, in the year
2006 introduced a scheme for classification of Timeshare Resorts, for which guidelines have already
been framed.
ALTERNATE PRODUCTS
How different are these alternative products from Traditional Hotels
The four alternative products discussed in this
paper are: Timeshare, Fractional Ownership,
Private Residences as well as Condo Hotels.
While timeshare, fractional ownership and
private residences are primarily driven by
utilisation of the product, a sense of ownership
and lifestyle motivations, the condo product is
primarily driven by a sense of ownership and a
return on investment.
Timeshare
Timeshare offers a period of use for a certain
accommodation each year in a managed resort
environment in desirable tourist destinations.
Timeshare offers flexibility and variety to vacation ownership by allowing owners to trade their vacation
weeks for a similar unit in the global network (subject to the resort being affiliated to a global timeshare
exchange company). This product is usually purchased in one-week increments and the use rights can
either be fixed or floating. The timeshare model was first introduced into the Indian market by Sterling
Hotels and Resorts with an increasing number of competitors.
Condo Hotels
These products offer the investor whole deeded ownership of a managed room or suite within a luxury
hotel development or a residential property development. Typically the owner has between 21 to 60
days annual use and the remaining time is used by the management company to generate revenue
through an organized rental programme. Proceeds are split between the owner and the management
company.
Fractional ownership
A Fractional property, which is deeded, is sold to buyers whose primary purchase motivation is to buy
and use a second home. The product is typically a condominium, attached townhouse or smaller stand
alone homes such as a cottage or villa. The most common share size is a quarter share which gives
Investment
Ow
nersh
ip
Lifestyle
Usa
ge
Condo Hotels
Timeshare
Fractional Interest
Private Residence Club
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The Spectrum of Leisure Real Estate Products in India
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A C & W A N D R C I J O I N T P U B L I C A T I O N
owners approximately 12 to 13 weeks use per year. These weeks can be used, gifted, rented or
exchanged though a third-party exchange company. The properties are mid to high end in forms of 2-
3 bedroom luxury apartments, condominiums or family houses in a secluded setting – urban, beach or
mountain location. They also often include a wider range of services like concierge service butler
service etc.
Private Residence Clubs
Offer owners luxurious, typically purpose-built properties in prime locations and longer share times as
well as a wide array of additional benefits. PRCs have emerged as a growing alternative to second home
ownership, where the ownership is deeded. The low member-to-property ratios simplify the
reservation process and ensure that the property remains exclusive. Private Residence Club
accommodations are spacious 3 to 5 bedroom units, luxurious and well-appointed with furnishings
comparable to a 5 star hotel, except that the member is an owner and pays annual HOA dues instead of
renting by the night.
The following tables provide a brief overview of each product offerings.
Traditional Timeshare Condo Hotels
• Outright deeded purchase or Right-to-use of holiday accommodation
• Often a week used for exchange or points-based currency for flexibility
• Ranges from studio to 2 bedroom accomodation
• Purchase price approximately INR 3 lacs
• Annual fees of ranging from INR 7,000 to 10,000 per week
• Commonly managed to operate as a hotel with individual units sold to consumers
• Hotel rooms put into a condominium legal structure and sold individually
• Owner receives personal use rights of between 21 and 60 days per year
• Purchasers join a rental pool and the property operates as a hotel
• Owners may receive upto 50% of the rental income proceeds from the unit
Traditional Fractional Private Residence Clubs
• Usually 2 to 3 bedrooms
• Average 6 to 7 weeks use with some rental activity
• Sold in a similar fashion to wholly owned homes
• Can have a rent back element
• Usually 3 to 4 bedroom with very high-end furnishings
• Guaranteed high season availability of 4 to 6 weeks
• Sold as an alternative to wholly-owned second homes
• Limited rental activity
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• Product in establishment phase; limited supply; considerable potential demand
• On sale of 85 to 65% of the inventory depending on total cost.
• On completion of timeshare membership period or anytime during the term if total asset value is discounted by remaining membership value
• Typically over the life period of the membership
• Product in early establishment phase; limited supply; considerable potential demand
• On sale of 70% of the inventory
• This is a deeded product. Once sold out developer has very little involvement
• Typically over the life period of the membership
• Product in a very nascent stage; demand likely to be from second home buyers seeking good investment returns
• Typically, prior to development or within the first few years of operation (typically on sale of 75% of the units)
• Upon sale of all units or at any point during the term of operation (depending on the terms within the lease agreements and management rights agreement)
• Optional, particularly if returns are guaranteed to unit owners
• Product not entered the market; typically requires considerable demand base and capital prior to development
• On sale of 70% of the inventory
• On completion of membership period or anytime during the term if total asset value is discounted by remaining membership value
• Typically over the life period of the membership
Barriers to entry in India
Development Cost Recovery
Relevance to the Developer
• Medium to high in most established cities, due to proposed new supply and existing competitors
• Long term payback
• At any point during the operation of the hotel
• OptionalExit Strategy
Long Term Involvement
Return on Investment
Strategic Resilience
Timeshare Fractional Ownership Condo Hotels Private Residence Hotels
Clubs
Source: Cushman & Wakefield Hospitality
Average Fair Good
The Spectrum of Leisure Real Estate Products in India
RELEVANCE OF EACH PRODUCT TO KEY STAKEHOLDERS
With travel booming in the region and major development projects underway, shared ownership of real
estate, where multiple individuals own the right to use a common piece of real-estate for an agreed
upon amount of time, offers considerable potential for developers, operators and financial institutions.
The more affluent consumer market is still willing to spend money on second home real estate,
including higher end Private Residence Clubs, when they are convinced there is value for this real estate
and they find something they perceive as exceptional. Location has become an even more important
determinant of success for all hospitality related products.
The key stakeholders across all products may be largely classified into developers, operators and
consumers. The relevance of each product to each stakeholder group is detailed in the table below:
6
A C & W A N D R C I J O I N T P U B L I C A T I O N
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• Requirement of hotels in more than one location due to continued competitiveness in the market; relatively lower quantum of management fees on operation of a timeshare product
• Maintenance cost charged to the consumer
• On assignment of operational agreement or on completion of the term
• Operator may also be in the form of a facilities management company as ownership is linked to the asset
• Maintenance cost charged to the consumer
• On assignment of operational agreement or on completion of the term
• Product not established in India; growing hotel and serviced apartment product in key Indian markets are likely to increase the barriers to entry
• Unit owners may wish to exit the pool limiting operational efficiencies to the operator, particularly if the operator is brought in after sale of all units and a minimal unit requirement is not explicit in the lease agreement
• Sale of management rights through assignment or on completion of term
• Product not established in India; nature of the product would require an experienced operator with exceptional capability
• Maintenance cost charged to the consumer
• On assignment of operational agreement or on completion of the term
Barriers to entry in India
Development Cost Recovery
Relevance to the Operator
• Medium to high in most established cities, due to proposed new supply and existing competitors; entry of new operators and brands into India
• Operator is paid via management fees
• Assignment of Management Agreement or on completion of the term
Exit Strategy
Long Term Involvement
Return on 2
Investment
Strategic Resilience
Timeshare Fractional Ownership Private Residence Hotels
Clubs
Condo Hotels
Source: Cushman & Wakefield Hospitality
Average Fair Good
• Payment of full (or near full) membership upfront or in first few years
• Use maybe anytime during the year if it is points based product, at any resort if affiliated with an exchange company
• Typically associated with mid-market to first class quality, particularly if affiliated with a branded operation
• Typically within a limited period immediately after membership payment
• Payment of partial asset cost despite application of restricted use, with potential for a return
• Use restricted to period allocated as per agreement
• Good quality perception if property is managed by an operator
• Asset share may be on-sold, depending on the agreement terms
• Investment motive where an asset is purchased typically based on its return potential
• Use typically for 21 to 28 days but restricted to providing the operator with an opportunity to capitalise on peak seasonal demand
• Good quality perception as property is managed by an operator similar to a hotel
• Asset may be on-sold, depending on the agreement terms
• Perception of an exclusive private club with a shared ownership option
• Use restricted to period allocated as per agreement
• Exclusive and high end
• Asset share may be on-sold, depending on the agreement terms
Barriers to entry in India
Development Cost Recovery
Relevance to the Consumer
• Value perception is primarily based on cost, brand or market positioning of the hotel
• Use flexible throughout the year, but subject to rate variances due to seasonality
• Good quality perception as property is managed by an operator, particularly if affiliated with a branded operation
• Asset maybe on-sold at any time
Exit Strategy
Long Term Involvement
Return on Investment
Strategic Resilience
Timeshare Fractional Ownership Private Residence Hotels
Clubs
Condo Hotels
Source: Cushman & Wakefield Hospitality
Average Fair Good
The Spectrum of Leisure Real Estate Products in India
7
2 Assuming all products are operated under a management contract and condominiums under a management rights agreements
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The Spectrum of Leisure Real Estate Products in India
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A C & W A N D R C I J O I N T P U B L I C A T I O N
FOCUS ON TIMESHARE
The Origin of Timeshare
An idea which had a lot in common with timeshare was put into practice in 1963 when, at a hotel in
Ticino, Switzerland, a German named Alexander Nette developed an innovative concept. His idea was
to sell shares in the business, each share giving its owner right-of-residence points. The timeshare
owners were therefore called shareholders or partners. By 1968 Hapimag, the company which arose
from this original idea had 8,000 shareholders. It now has more than 125,000 shareholders and 4,800
apartments at 53 locations in 15 countries.
By 1967, a similar concept was being introduced by one of the largest construction companies in
France, Les Grands Travaux de Marseille. It was the first classic holiday timeshare programme in the
world. Fixed units were sold for holiday purposes at a ski resort called Superdévoluy in the French Alps.
With its slogan 'Stop renting a room – buy the hotel, it's cheaper', it was an immediate success as the
purchase of the holiday weeks brought with it, the guarantee of reservations for those who wanted to
ski in the area.
The first timeshare plan was introduced in the US in 1968, with the conversion of a hotel in Hawaii, but
not much was really heard of timeshare there until the short-term collapse of the whole-ownership
condominium sector in 1974.
During the oil crisis in the mid-1970s, coming after a building boom in Florida, the idea of timeshare
was adopted as the answer to the fall in the property market. Lowering the prices of units by converting
them into weekly intervals meant that more people could afford them.
Some faltering condominium projects in St.
Thomas, Fort Lauderdale and Puerto Rico were
converted into timeshare projects but, in their
desperate haste to make a sale, many of the projects
failed due to poor legal structuring, financing and
marketing. Nevertheless, although at this point
timeshare projects were on a small scale, fragmented
and relatively unregulated, timeshare had started to
take off and by the end of the 1970s annual sales had
risen to $50 million.
Profile of the Timeshare Product in India
The timeshare industry globally comprises of over 5,425 resorts with approximately 6.7 million owners
representing approximately 10.7 million timeshare weeks across 200 countries.
The timeshare industry in India is at a nascent stage. The industry in India has grown from single resort
Typical Demographic Profile
Average Age: 42 yrs
Range of Age: 27 to 55 yrs
Avg. Household Size: 4 people
Avg. no of Children: 1.5 children
Membership Gender 89.8% Male
Profile: 10.2% Female
(Source: Club Mahindra)
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hotel timeshare developments to chains of hotels
and resorts providing consumers with the
opportunity to buy vacation time at any of their
properties nationally. The exchange company
typically has service affiliations with a number of
timeshare resorts and hotel chains worldwide. This
enables the consumer to exchange time at any of the
resort affiliates through the exchange company for a
fee.
The advent of timeshare in India has also resulted in
the establishment of regulatory bodies which ensure
authenticity and safeguard consumer interests. The
All India Resort Development Association
(AIRDA) focuses on ensuring that there is no false
advertising, that each project is clearly designated as
a timeshare and that timeshares are run by licensed
operators.
Performance of the Timeshare Industry in
India
The timeshare industry in India comprises of
approximately 4,640 timeshare units and 146,450
members representing approximately 241,330
timeshare weeks.
The robust economy has facilitated considerable growth in per capita income, which in turn has
increased the discretionary spending of a large section of the population. Destinations such as Goa,
Kerala and Rajasthan, which were known to be hot spots for international visitors, have seen a change in
the visitor profile with more demand registered from the domestic markets. This has resulted in
considerable growth in room tariffs, some flattening out of seasonality as well as a situation of limited
hotel supply during the peak season. Timeshare has been credited for opening up new destinations like
Coorg and Munnar to tourists across India which were earlier known and visited by very region specific
tourists.
The timeshare concept has, to an extent, provided a solution by offering relatively affordable vacation
ownership packages for the same price at multiple locations. The perception of a 'paid holiday' (due to
the advance payment nature of the concept) has also been received favourably by consumers and is
likely to grow in popularity over the short term.
Based on our research, demand for timeshare hotel product in India is likely to grow at approximately
The Spectrum of Leisure Real Estate Products in India
INDIA REPORT | JANUARY 2009 9
A C & W A N D R C I J O I N T P U B L I C A T I O N
Exchange
Company
Timeshare
Report
Member
Maintenance
Fees
Sales & Service
Mem
bers
hip
Exch
ange
Ser
vice
s
Affiliation
Services
Key Timeshare Transaction Facts
Growth in transaction bookings by Indian
members (YOY Jan 08 to Nov 08): + 28%
Growth in transaction bookings by
International members into India
• Month of Nov 08: + 39%
• Month of Dec 08: - 26%
• Month of Jan 09: + 51%
Note: Transaction bookings also reflect
memberships purchased in advance and do not
reflect the purchasing capacity of timeshare in
the current economic environment
(Source: Group RCI)
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006 (E) 2007 (E) 2008 (E) 2009 (P) 2010 (P) 2011 (P) 2012 (P) 2013 (P) 2014 (P) 2015 (P)
Year
1,000
2,000
3,000
4,000
5,000
6,000
Ave
rage
Est
imat
ed U
nit S
ale (
%)
Average Unit Cost Per DayAverage Unit Sale
(Source: RCI, We note the above estimates are indicative only and represent typical performance of a 1 bedroom
apartment. Please note that further research is necessary to understand the true potential of the timeshare industry in India)
Ave
rage
est
imat
ed r
oom
rat
e (
INR
)
The Spectrum of Leisure Real Estate Products in India
INDIA REPORT | JANUARY 2009 10
A C & W A N D R C I J O I N T P U B L I C A T I O N
16% per annum from 2006 to 2015, facilitated by supply growth of approximately 12% per annum over
the same period. The average unit sales for a typical timeshare development (eg: 1 bedroom apartment
unit sale from a consumer perspective) is likely to grow at 3% per annum from 2006 to 2015.
Most timeshare products in India are typically positioned at the mid market to first class categories. We
understand that the market is likely to experience some growth in supply in the five-star to luxury hotel
categories. As per our research, the average unit cost per day for a consumer is likely to grow at
approximately 4% per annum from 2006 to 2015, compared to approximately 5% to 8% for a pure hotel 3
product .
2006 (E) 2007 (E) 2008 (E) 2009 (P) 2010 (P) 2011 (P) 2012 (P) 2013 (P) 2014 (P) 2015 (P)
Year
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Average Unit SaleTotal Timeshare Supply Total Timeshare Demand
Num
ber
of T
imesh
are U
nits
(in 0
00s)
Source: RCI, We note the above estimates are indicative only and represent typical performance of a 1 bedroom
apartment. Please note that further research is necessary to understand the true potential of the timeshare industry in India)
Est
imat
ed A
vera
ge O
ccupan
cy R
ate
3 Growth is based on average year on year increase in ARR for hotels
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Impact of branded hospitality players and
reputed conglomerates is the need of the
hour. As in other international markets,
brands have made timeshare an important
part of their product portfolio, and thereby
created a huge impact by not only driving up
the average purchase price but also creating a
huge awareness. The credibility of a brand
plays an important part in the consumers'
psyche due to the conceptual nature of the
product. Potential consumers, while agreeing
to the benefits of the product, have often
cited the lack of branded players as their
reason for not purchasing timeshare, thus indicating a requirement for both credibility and glamour
in the product.
The timeshare industry in India weighted towards west India owing to considerable capture by
Mumbai, Pune, Ahmedabad, Surat, etc. The northern region includes NCR, Lucknow, Punjab,
Jaipur, etc and represents approximately 23% of the timeshare industry. East and south India
represent approximately 6% and 29% of total timeshare members.
Constraints and Pitfalls of the Timeshare Product
There are a number of constraints and pitfalls as well as opportunities and advantages associated
with the timeshare product.
Constraints and Pitfalls:
• Weak and inconsistent tour flow driving high marketing costs
• Old-fashioned sales tactics with inconsistent close rates
• Bad product design that leads to off-schedule refurbishment
• Ineffective property management which leads to high maintenance fees and/ or non-payment
by owners
• Generally lower rate achievability for resorts with partial timeshare product, compared to rates
achieved by pure hotel product
Opportunities and Advantages:
• Location of resort does not necessarily require a location-specific demand catchment area
• Product is based on a customer centric property management approach for holiday makers
• Global exchange affiliation with inventory where clients travel (subject to the resort being
affiliated to a global exchange company)
• Multi-location holidays for the consumer at relatively the same cost (excluding additional fees
associated with a national or international vacation transfer)
Timeshare Member in India
West North South East
5.98%41.78%
22.9%
29.35%
Source: Group RCI
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• Opportunity for a pure hotel product to maximise on occupancy and capture demand by
incorporating a timeshare quota
• Opportunity for operators to link loyalty programs to vacation ownership management
companies to create a USP and differentiate themselves from competitive operators. This is also
likely to facilitate some growth in loyalty program members as well as facilitate some demand
for timeshare specific rooms within a resort or hotel
• Opportunity for the developer in retrieving a large portion of development cost either before
the resort is operational or within the first few years
FOCUS ON FRACTIONAL OWNERSHIP
While the timeshare product has experienced some growth in recent years in India, the fractional
ownership model is yet to be established in the organised sector.
Profile of the Fractional Ownership Product
The fractional ownership concept is defined as the selling of resort real estate in intervals of more
than one week but in less than whole ownership. Shares or 'fractions' typically range from two
weeks of ownership to a one-quarter (three months of ownership).
Fractional ownership is a form of a holiday ownership programme longer than the traditional one
or two-week timeshare product. They have been an increasingly important element in the holiday
ownership industry since the late 1990s in the USA where the fractional ownership model began to
attract interest after the Tax Reform of 1986 which reduced the utility of second homes as tax
shelters. Faced with increased costs resulting from unused holiday homes and the difficulty of
renting them out, the traditional second home buyer began looking for alternatives. The fractional
ownership model offered an appealing compromise; the right to occupy the unit for a portion of
the year tailored with their expected usage pattern – from four weeks to 13 weeks – at a price that
reflects the period used only, coupled with a second home interest deduction.
For developers too, the concept was attractive, providing an affluent, newly interested market.
Profit margins are likely to be higher in the fractional ownership model than in full-unit second
homes sales, closer to timeshare margins and with fewer units to sell, marketing costs are lower than
traditional timeshare programmes. Usually, the consumer obtains the right to occupy the unit on a
rotational basis, enabling each consumer to use the holiday home during each season of the year.
Typically, six purchasers buy specific calendar months so that owner number one, in year one would
have January and July, with owner number two having February and August, owner three having
March and September so on and so forth, but with the calendar revolving forward by one calendar
month each year, so that over a six year period, each of the owners would have had an entitlement
to utilisation of all calendar months.
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A C & W A N D R C I J O I N T P U B L I C A T I O N
The fractional interest concept has existed for a number of years internationally. For example,
individual friends or relatives collectively buy a holiday home and share in its use, in accordance
with a predetermined schedule. Over the years, developers in USA have sold fractions of whole
ownership and thereafter have provided management services to the owners.
Commonalities between High-End Fractional Ownership and PRCs
The high-end and luxury Fractional Ownership product shares a number of common
characteristics with Private Residence Clubs (PRC). The key features of a luxury fractional home set
it apart from traditional timeshare as well as those fractional interests positioned in the low or
moderate tiers of the market.
In addition to share size, other differentiators include higher product cost, higher price points and
lower marketing costs. The fractional product is further segmented with the PRC combining all the
benefits of fractional ownership but with a significant overlay of amenities and services such as
would typically be found within a five-star hotel, with related brand standards and assurances and
targeted only at the most affluent consumers.
PRODUCT CONCEPT
High disposable income is associated with more leisure time and a preference for luxurious
surroundings, what are often termed 'the money rich, time poor' segment. In the case of affluent
households with minimal leisure time, much of the promotional emphasis is placed on the well-
documented psychological and spiritual need for family vacations. In response to a desire for a high
quality alternative to a wholly owned second home, without the associated costs, hassles and
responsibilities, sales of fractional interests of luxury condominiums, townhouses and single family
cottages/ homes have demonstrated a market with considerable untapped demand in India as well
as internationally.
The coupling of the concept of a private club with shared ownership is a recent trend that adds
sophistication and a higher level of exclusivity to the product. Included are elements such as a
private clubhouse and a range of five star hotel services that are not available with wholly-owned
resort real estate. The club is structured to function like a private golf club where the members are
entertained with social events and form social relationships with other members. The PRC is
marketed as a real estate investment, not vacation time. The emphasis is on 'relationship selling'
rather than 'mass merchandising'.
The PRC concept strives to create exclusivity and a sense of belonging while catering to the
sophisticated wealthy buyer at the top of the social strata. The competition for PRCs arises from
wholly owned vacation homes and not timeshare, as access available to the general public detracts
from this exclusivity. Owners or members over time have shown a willingness to pay a premium for
the added security and social advantages afforded by a PRC.
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The Spectrum of Leisure Real Estate Products in India
INDIA REPORT | JANUARY 2009 14
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Product characteristics
In general, three-bedroom units are the most common fractional unit type, followed by two
bedrooms. While the unit mix varies somewhat by location, three bedrooms typically account for
one-half to two-thirds of all units, while two bedrooms comprise roughly one third of the supply.
Four-bedroom homes have also been gaining in popularity. The market is expressing a preference
for larger units, particularly in the more elite resort locations. This follows the logic of buyer
motivation being an alternative to second home ownership.
A second home will generally provide two or more bedrooms and allow greater flexibility in terms
of use. The fractional and PRC buyer prefers to retain a certain degree of flexibility. Typical sizes
range from 1,800 to 2,000 square feet for two bedrooms and 2,200 to 2,600 square feet for three
bedrooms. Given that a luxury fractional home competes against whole ownership, the buyer is
more focused on the size, quality and use structure of the programme than the price, which
becomes secondary considering a cost per share at 20-25% of whole ownership for comparable size
and quality.
CONSTRAINTS AND PITFALLS OF THE FRACTIONAL OWNERSHIP PRODUCT
There are a number of constraints and pitfalls as well as opportunities and advantages associated
with the fractional ownership product.
Constraints and Pitfalls
• Location of the development is of importance as the consumer makes frequent trips to the
same location. Most often the cost associated with a premium location is relatively high
• Amenities provided are not always consistent with purchasers interest
• Excessive or under-utilised amenities which drive annual fees
• Product does not meet the target market (e.g. unit size)
• Product quality is inconsistent with location quality
• Uncertainty or lack of comfort of sharing a deeded property with others
Opportunities and Advantages
• Known usage patterns meet availability
• Friends and family participation or involvement
• Lifestyle fulfilment without the burden of whole ownership
• Financial capability which may limit purchasing full ownership of a second home
• Opportunity for developers to promote fractional ownership as an option to full ownership in
the current market scenario, particularly given the relatively high supply nature of the residential
market in some key cities in India.
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CONCLUSION
The future of the timeshare and fractional ownership products in the Indian real estate market is
likely to be governed by several factors including price appreciation in the resale market, the degree
to which development financing is available in the future, which has been a major constraint to the
growth of the supply in the past and over the short to medium term given the current economic
environment, the rate at which consumer awareness of the product increases in the future, the
financial success of future projects as well as the extent of long-term return on investment that
each product is able to generate, particularly in the current economic environment. The fractional
ownership model is likely to become increasingly popular in the current market environment where
an asset may be purchased for a fraction of the cost with associated restricted use. The model
allows for easy exit and also provides an opportunity for capital gain. The Timeshare model is likely
to also gain considerable popularity in the domestic market, driven by the perception of a relatively
discounted cost of a holiday at the time of utilization compared to the hotel product. In the current
economic environment it is also likely that the timeshare utilization may experience more demand in
urban city hotels with some transference of business demand from traditional hotels to timeshare
hotels as a cost saving mechanism.
Due to the relative immaturity of the timeshare and fractional ownership industry, it is difficult to
forecast the degree to which the above factors will influence growth positively or adversely. As the
market gains experience and comfort with the product, it is likely that innovative strategic and
marketing initiatives will facilitate a means of meeting consumer needs through product design,
pricing and usage plans.
With a slow down in the US economy and its impact on Asian markets there is a lot of speculation
and uncertainty in the industry especially on absorption of planned hotel supply in the coming
years. A considerable amount of money is being invested and major alliances have been formed
which indicate a positive outlook and strengthens the market sentiment. An estimated 41,600 hotel
rooms across major 9 cities will be furnished over the next four to five years. Most of these hotel
rooms correspond to hotels with brand affiliations and are in various stages of planning and
development. With several proposed properties under construction, the markets are likely to see a
drop in the occupancy rates and rationalisation of average room rates in the long term. The current
global economic environment is likely to also impact the hotel industry in the medium term as it is
primarily driven by business and tourism; but as most businesses, there will only be a cyclical dip.
In the wake of the current economic environment, hotels and alternative commercial
accommodation products are likely to focus more on sustainability and implement performance
improvement and asset management strategies in an effort to combat short (e.g. Mumbai blasts),
medium (e.g. economic slowdown) and long term (e.g. considerable new supply pipeline) obstacles,
improving their resilience and reducing risk, to an extent, in the long term.
The Spectrum of Leisure Real Estate Products in India
INDIA REPORT | JANUARY 2009 15
A C & W A N D R C I J O I N T P U B L I C A T I O N
INDIA
REPORT
Bibliography:
Brochures / Information booklets
• World Economic Outlook, October 2008 – International Monetary Fund.
• The Global Competitiveness Reports 2008-09, October 2008 – World Economic Forum.
• “Made in India”, September 2005 - McKINSEY and Confederation of Indian Industries (CII).
• Industrial, Investment and Infrastructural Policy of Maharashtra – 2006,
Government of Maharashtra.
• Gujarat Industrial Policy – 2003, Government of Gujarat.
• Website: www.sezindia.nic.in
Cushman & Wakefield is the world's largest
privately held commercial real estate services firm.
Founded in 1917, it has 227 offices in 59 countries
and more than 15,000 employees. The firm
represents a diverse customer base ranging from
small businesses to Fortune 500 companies. It offers
a complete range of services within four primary
disciplines: Transaction Services, Capital Markets,
Client Solutions and Consulting Services.
Cushman & Wakefield Hospitality provides a wide
range of consulting services for hotels, resorts,
serviced apartments and mixed-use developments.
We specialise in operations analysis, market
research, demand analysis and have developed a
detailed understanding of the dynamics of the
accommodation industry. This allows us to complete
comprehensive market demand forecasts, which
form the base for market and business assessments,
financial projections and valuation services. Through
the integration of consulting and valuation services
with design management and project direction
services, we can provide our clients with a full suite
of services from site analysis and project
conception, through market analysis and financial
evaluation, to construction administration and
project delivery.
A recognised leader in global real estate research,
the firm publishes a broad array of proprietary
reports available on its online Knowledge Center at
cushmanwakefield.com/knowledge.
For more information:
Akshay Kulkarni
Director - South Asia
Cushman & Wakefield Hospitality
Tel: +91 22 6657 5555
E-mail: akshay.kulkarni@ap.cushwake.com
©2009 Cushman & Wakefield
All Rights Reserved
Disclaimer
This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The
information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not
guarantee that the information is accurate or complete.
The Spectrum of Leisure Real Estate Products in India
INDIA REPORT | JANUARY 2009 16
A C & W A N D R C I J O I N T P U B L I C A T I O N
Group RCI, part of the Wyndham Worldwide
family of companies, (NYSE: WYN) is the global
leader in non-hotel leisure accommodations with
exclusive access for specified periods to more than
67,000 vacation properties in nearly 100 countries.
Organizationally, Group RCI is comprised of
vacation exchange, including RCI®, the worldwide
leader in timeshare and vacation exchange and
provider of travel services to businesses and
consumers and The Registry CollectionÒ, the
world’s largest luxury exchange program; vacation
rentals, including Endless Vacation RentalsSM , Landal
Greenparks®, Novasol®, and more than 30 other
vacation rental brands, through which vacationers
can rent a wide variety of property types, from city
apartments to country cottages to unique villas; and
NorthCourse®, Leisure Real Estate Solutions, an
international leader in providing a full spectrum of
advisory, research, asset management and turnkey
solutions and services. Collectively, the company
delivers vacation experiences to leisure travellers
around the world and provides products and
services to business customers that support the
growth of the leisure real estate industry. Wyndham
Worldwide Corporation is one of the world’s
largest hospitality companies with leading brands in
lodging franchising, vacation ownership, vacation
rentals and vacation exchange. For additional
information visit www.grouprci.com or the media
centre of www.wyndhamworldwide.com
For more information:
Anin Bagchi
Director - Business Development
Group RCI
Board no: +91 80 41849207 / +91 98860 40505
Email: anin.bagchi@rci.com
INDIA
REPORT
Authors of the report:
Sohaila M
Cushman & Wakefield
Hospitality
sohaila.m@ap.cushwake.com
Juhie Tak
Cushman & Wakefield
Hospitality
Juhie.tak@ap.cushwake.com
Shaila Vivek
Research & Business Analytics Group
Cushman & Wakefield
shaila.vivek@ap.cushwake.com
www.cushmanwakefield.com
©2009 C
ush
man
& W
akefield
All
Rig
hts
Rese
rved
www.grouprci.com