CW PROPERTY TODAY explores this first-of-its-kind long term asset management programme for leased residential real estate.
India´s online marketplace Snapdeal and leading developer Puravankara Projects, in association with international property consultancy JLL India, recently launched a unique leased asset management programme: A Managed Residences Plan for their customers.
How does it work?
The plan enables customers to purchase ready-to-occupy apartments from Puravankara across Bengaluru, Chennai, Coimbatore and Kochi, and lease them back to the developer for a contracted term of seven years. Offering 200 ready-to-occupy residential assets in the inaugural phase of its launch with investment sizes ranging from Rs 35 lakh to Rs 3.5 crore, the exclusive bookings for the Managed Residences Plan was open on Snapdeal from May 27, 2016, for 10 days.
Explaining the plan, Ashish Puravankara, Managing Director, Puravankara Projects Ltd, says, ´Overseas, managed residences are a common product. So, all the residents in such a building are tenants; operators manage these assets on behalf of the owners and charge an operator fee. In India, however, as this is a new model, we are not currently charging an operator fee. But, eventually, if the first phase is successful and we are able to lease 100-150 units, we will move to an operator fee model, which could act as an income model for us. Over the years, we will get returns from this operator fee.´
The launch of this plan on Snapdeal allowed prospective purchasers to place an expression of interest online, along with a nominal reservation amount, after which Puravankara will assist them in choosing a unit. Snapdeal has helped Puravankara market and promote this product on its platform and through other means. As lease manager, JLL will assist it in sub-leasing the residential apartments to tenants and provide leasing-related services, for which JLL will be paid a lease management or brokerage fee. Ashwinder Raj Singh, CEO-Residential Services, JLL India, shares, ´We have a two way role: We will help Puravankara lease out the properties and sell them in the open market.´ The developer will be taking the responsibility of maintaining the property.
Value for investment
As part of the contract, Puravankara will secure pre-agreed monthly rentals to the customer and pay the common area maintenance amount to the Building Association. Hence, the purchaser enjoys hassle-free, uninterrupted rental returns for seven years, along with an additional rental appreciation benefit of 8 per cent every year. As Singh points out: ´It´s an exclusive product, a pre-leased residential asset that will give customers rental yields. Further, there is no delivery risk because the properties are already delivered. And then, the customer will also benefit from capital appreciation. So it is a win-win for clients, both in India and abroad, because they don´t have to worry about the rentals, maintenance, etc.´ JLL has also offered to provide lease management services to purchasers beyond the seven-year period, in return for a service fee.
This model can definitely be proposed as a good option for developers in India. Speaking about the response, Puravankara says, ´A tremendous amount of new inquiries have been generated, which are lead indicators; sales will follow. During the 10 booking days, about 3,000 qualified inquiries have been generated. This is about 40 per cent of the total inquiries received.´ Puravankara had offered 200 assets in this slot of bookings for this category. ´A typical home purchase cycle takes about 60 days,´ he adds. ´So, by then, we will get a reasonable sense of how this has turned out for the market. If it turns out well, we will definitely open another series of bookings.´
Further, Singh tells us that there are other developers in India already working and contemplating this kind of a model. ´Earlier, we had only heard of pre-leased commercial assets, giving 6-7 per cent returns,´ he says. ´This is the first pre-leased residential asset, which many developers may want to adopt.´
Indeed, the plan functions as a dedicated long-term asset management programme for leased residential real estate, driving better value for investments.