This sort of property is better suited for an investor rather than an end user.
In Karjat, a popular weekend destination for adventure lovers and tourists situated in the proximity of both Mumbai and Pune, private developers such as Pushpam Group are offering villas which they call 'kamanewala ghar' (a house that enables you to earn).
How does it work?
Upon purchasing a house in a project such as Pushpam Sanskruti at Karjat, the buyer gets to use the house for a fixed number of days of the year.
During the rest of the year, the builder offers these resort homes to tourists and vacationers.
A part of the revenue or profit generated is shared with the homebuyer. Thus, besides owning a home at a holiday destination where he can vacation from time to time, the buyer also gets to rent out the house and earn an income.
The Pushpam group also has a project, Balibaug (with Bali-themed villas) in Alibaug.
According to Sachin Chopda, managing director, Pushpam Group, "The average cost of a villa in the Balibaug project is Rs 1.5 crore to Rs 2.2 crore, all inclusive.
"We offer an assured monthly rental of Rs 40,000 to Rs 75,000, or 20 per cent share in the revenue, whichever is higher."
The property is managed by a hospitality partner, so the buyer does not have to bear the burden of maintenance.
The resort operator and the management company bear the responsibility of finding tenants for the villas.
"This is the time share model which is usually offered in smaller projects situated in holiday destinations," says Amit Goyal, managing director, India Sotheby's International Realty.
Goa, Lonavala, Nanital, etc are other holiday destinations where this model is popular.
Dual advantage
According to Goyal, this model offers the best of both the worlds: regular cash flow which can result in an annual yield from the property that is as high as 5-6 percent of the capital value of the property (compared to 2.5-3 per cent in normal residential housing), alongside hassle-free maintenance of the property.
In addition, the buyer would also get the benefit of capital appreciation over a period of time.
Projects offering fixed rental returns are more popular on the commercial side.
Some builders have tried them on the residential side, but not with much success, which is why experts strike a note of caution.
"The assured return schemes, the kind offered by many developers within the National Capital Region, are highly unlikely to yield good results.
"They have failed in the case of multiple builders," says Aditya Parolia, partner, PSP Legal, Advocates & Solicitors.
Of course, there is a greater chance of such projects succeeding in holiday destinations.
Many of these projects were launched during the post-Covid reopening period, when domestic tourism was booming.
It remains to be seen whether they will be successful over a longer span.
According to Vivek Rathi, director research, Knight Frank India, "The rental income from such a property will depend on factors that enhance tenant engagement (the experience a tenant enjoys in a building).
"Contemporary amenities can also help boost the occupancy rate."
Rathi adds that returns from such a project will also depend on growth drivers within that particular market, such as infrastructure development plans and the government's focus on the location where the buyer intends to make a purchase.
Rathi says an investor should be cautious and not take the words 'secured return' at face value.
The occupancy levels in these properties can vary significantly, depending on the location within the holiday destination, and seasonality.
"Be conservative in estimating the cash flow that you are likely to get from such a project," says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisers.
Experts also warn against investing in these projects for their social cachet.
Such projects make for great cocktail party conversation, but come with inherent risks such as low liquidity, lower than estimated inflows, among others.
This sort of property is better suited for an investor rather than an end user.
Says Amit Kumar Agarwal, founder and CEO, NoBroker.com, "This is an enticing proposition for the investor, who could earn a rental yield of 3-8 per cent, and also a healthy appreciation in the value of the property."
Be cautious
From the financial planning point of view, you should make sure that an investment in a project like this does not compromise your other important financial goals.
"Liquidity tends to be very low in these assets. If funds are needed for other goals, getting access to funds may prove difficult," says Dhawan.
In other words, selling and exiting such projects may not be easy.
Investors should only use their own funds, and not borrowed funds, to invest in such projects. If you depend on borrowed money, any slowdown in cash flows from the project will affect your ability to pay the EMIs.
Finally, use a professional, who understands the resort business and its risks, to vet the project so that you enter the investment with a better understanding of the risks involved.
Price chart (LPA stands for lakh per annum).
Source: NoBroker, an Indian no-brokerage property Web site
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Feature Presentation: Ashish Narsale/Rediff.com
