The Singapore-based The Ascott and Chennai's Rattha group combine to promote serviced apartments in the South. Venkatachari Jagannathan reports.

Chennai: Like the deluxe hotel sector, the serviced apartment industry in India is attracting big names. The Singapore-based The Ascott (Ascott) group is entering the southern markets with big plans. With around 17,000 serviced apartments under its fold, the Ascott is the largest serviced apartment provider outside of the US.

Simply put, a serviced apartment is a hybrid between a hotel and a residential apartment or condominium. Take a deluxe hotel room and add a kitchen, washing machine, music systems and other basic consumer durables, and what you have is a serviced apartment. They could be two- and three-room apartments. In addition, several of them offer a restaurant, gym and a swimming pool.

These apartments offer the privacy of a residential apartment and the comfort and security of a hotel but at a rate that is far lower than room tariffs in deluxe hotels.

As to the economics of serviced apartments, unlike hotels they do not provide conference facilities or, business centres or plush lobbies. Though the occupancy ratio is normally higher than in hotels, the staff to manage the property (maintenance, servants, etc,) is comparatively low. This enables them to be cheaper alternatives to hotels and recover investments fairly quickly.

Ascott plans to develop seven properties in Indian in partnership with the Chennai-based Rattha group. "In the first phase we will build 1,000 apartment units in seven properties by 2010 at an investment of Rs1,000 crore ($220 million)," says Cameron Ong, managing director, Ascott. The two will develop properties in Andhra Pradesh, Karnataka, Tamil Nadu and Maharashtra.

While Ascott brings in its management expertise and funds, the Indian group brings land and money to the table. "We always partner with local groups outside Singapore," says Yip Hoong Mun, chief product and operations manager.

The Rattha group has acquired sizeable land in the southern cities of Chennai, Hyderabad and Bangalore. Says group chairman H S Rattha, "We acquired the land when the prices were low."

Garments-IT infrastructure-hospitality
Primarily a garment exporter, The Rattha group's flagship company, Roverco, has targeted a turnover of Rs300 crore this year shipping garments overseas out of its 16 factories in Chennai, Bangalore, Hyderabad and Sri Lanka. The Group ventured into property development in 2002 when it started building IT centers and parks. The group is in the process of delivering projects valued Rs700 crore measuring nearly 2-million sq.ft and has in the pipeline projects of about 4 million sq.ft.

With the Indian economy booming, expatriate executives and non-resident Indians (NRI) are coming in to take up assignments in India. These executives usually require some time before being able to move into their own accommodations immediately on arrival and have to await the shipment of their belongings before being able to set up home. Nor do they wish to stay for extended periods in the comparatively restricted confines of hotels, which over time also turn out more expensive. A readymade apartment, a transit home for a short duration is a preferred option.

With the IT sector booming in the South and also several hitech manufacturing facilities being established in this region, Rattha sensed an opportunity in promoting serviced apartments.

He got in touch with the Singapore group, which was also scouting for a suitable Indian partner. "We found Ascott delivering value for money. Our architects visited their properties and found the space being efficiently used thereby reducing the payback period. That is how this business partnership was cemented."

Signing a master development agreement, the two partners intend to initially start development of three properties (around 600 units) in Chennai, Hyderabad and Bangalore by this year-end.

Interestingly the Rattha-Ascott combine would promote separate companies for developing different properties and the equity holding could also differ from company to company.

Reasons Rattha, "This way there is flexibility in managing properties or projects that make it easy for the parties to continue or exit from one."

To start with, the two have floated Ascott Rattha Holding Pvt Ltd in which the Rattha group holds 60 per cent and Ascott 40 per cent. The company is in the process of constructing 210 apartment units in Chennai at an investment of $42 million. "Nearly 50 per cent of the project cost will be from equity contribution and the balance will be from debt," says Ascott's deputy chief executive officer (Finance & Investment) Chong Kee Hiong.

Named as Somerset Greenways, the project will be ready in the first half of 2008. Post construction the 2.6-lakh sq.ft property will be managed and marketed by Ascott for ten years for a management fee. "The contract duration and the management fee are as per the industry norms."

Speaking about the marketing of the projects Harbinder Singh, co-founder and director, Rattha group, "Ascott would take care of the marketing using its wide network. The target segment will be high-end executives and their families."

Competition is not for us
But competition is increasing. Big hotel chains like the Taj are now getting into the serviced apartment segment in addition to stand-alone players.

Further software companies like Infosys Technologies Limited, Wipro and Mahindra British Telecom are building huge guest houses-cum-training centres with residential facilities. For instance Infosys is building a Rs37-crore 500-room facility called Infosys Residence. In Hyderabad, HSBC is building a 350-room guesthouse.

Four and five star hotels are also coming up in the South. In Bangalore, ITC is building a 400-room 5-star hotel. Radisson and Marriott are also building their hotels. In Karnataka 15 new hotels are under construction.

In the four southern states of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu and the Union Territory of Pondicherry, around 112 hotels are coming up. Most of them are budget hotels. The state and Union Territory-wise break-up is: Andhra Pradesh 12, Karnataka 15, Tamil Nadu 29, Kerala 54 and two in Pondicherry.

However, Harbinder Singh is not perturbed by these developments. "The demand is high in Bangalore. The hotels are fully booked and hence there is business for us."

According to a Karnataka hotel industry official, the facilities built by the software companies have hit the 2- and 3-star and not the 4- or 5-star hotels. The 2- and 3-star hotels that enjoyed 80-85 per cent occupancy ratios till a couple of years ago now have to contended with just 60 per cent and impacting their topline to the extent of 30 per cent.

As Ascott-Rattha combine target the top executives who normally stay in 4- and 5-star hotels, it is not unduly worried about competition.

Meanwhile Ascott that has plans to build 3,569 units elsewhere in the world, is looking at India as a big opportunity. The group wants to build atleast 2,000 units by the turn of this decade and is looking at cities like New Delhi, Kolkata, Mumbai, Bangalore, Chennai, Hyderabad and Pune.

Owning three brands - Ascott Residence (premier 5-star category), Somerset (4-star) and Citadines (3-star)- Ascott will initially introduce the last two through its tie up with the Rattha group. The premium brand Ascott Residence will be launched later.

The group will also be looking at other potential partnerships to further expand its presence in India to reach its target.