Six years ago, builder and real estate businessman Inderjeet Singh switched to renting serviced apartments to corporate customers rather than selling the units. More recently, he has started renting individual rooms and apartments to travellers looking for an economic and comfortable alternative to hotels.
Singh has joined the small, but growing ranks of entrepreneurs in the hospitality business who are offering cost-effective vacation rentals—letting out furnished accommodation to travellers who would rather not stay in the impersonal and commercial ambience of hotels when they are on vacation.
“The demand for alternative options to hotels has been growing since the last few years,” said Singh. “It is not only corporates who are staying in serviced apartments, but foreign independent travellers and leisure travellers have now started opting for such accommodation because of its various affordable price points and unique homely ambience different from hotels’ corporate environment.”
As the US economy struggles for recovery, Europe battles its debt crisis and Indian growth slows, companies have cut down on business travel and individuals are tightening their budgets. That’s subdued demand for hotel rooms.
Vacation rental companies, bed and breakfast providers, serviced apartment owners and owners of villas and cottages who rent out their premises for short stays are betting on the tough economic environment to spur their business as travellers seek greater value for money.
Companies competing in the vacation rental space in the country include US-based Airbnb Inc., London-based RatedApartments.com, Indian start-up Oravel Stays Pvt. Ltd and Singapore-based start-up travelmob Pte Ltd, among others.
To be sure, the market for vacation rentals—a popular concept in advanced markets like the US, where it is worth an annual $25 billion (around Rs.1.4 trillion), and Europe—is still at a nascent stage in India.
Experts say the business has the potential to grow rapidly.
Singh listed his 150 rooms with RatedApartments.com six months ago. “Since last few months, on an average, I have 95% occupancy for my rooms,” he said.
Vacation rentals have become an attractive proposition for small entrepreneurs in the real estate and hospitality businesses because they are low risk compared with the traditional property business.
“After the real estate crisis a couple of years back, many small real estate and hospitality players switched to vacation rental business model,” said Sid Narang, co-founder and chief executive of RatedApartments.com. “In recessionary times, many people use their second homes as an option to make money, which creates supply. Travellers are also cost-conscious. They also shift to alternative accommodation options to cut costs. So there is a growing demand as well.”
RatedApartments.com provides a platform for property owners to reach out to customers.
“We are looking at raising $2 million for our expansion plan, including extending our services to 10 cities (in India) from four cities at present,” said Narang. “Since in India it is an unorganized industry, the faster we capture this, the more defensible position we will have in the years to come.”
The company started operations early last year and is providing distribution and customer access to some 3,000 small property owners in 22 cities globally at present.
“What makes this industry lucrative in this segment is (that it is) non-taxable, so 21% service and luxury tax that a traveller pays is exempted over here,” said Ritesh Agarwal, chief executive and founder of Oravel Stays. “Apart from corporates and those who are looking at alternative accommodation option because of economic slowdown, other big demand area is medical tourists.”
The company, which got seed funding from an angel-backed start-up accelerator, VentureNursery, last month, has 400 listings on its website currently. “We plan to take the number of listings to 3,500 by the end of this financial year,” said Agarwal.
Changing consumer behaviour is one reason for the foreseen growth in vacation rentals.
“There is a category of customers who prefer to stay in beach houses, cottages, inns and heritage homes rather than hotels,” said J.B. Singh, president and chief executive officer of InterGlobe Technology Quotient Pvt. Ltd, a global distribution system provider from InterGlobe Enterprises Ltd that runs low-cost airline IndiGo. “This trend has led to homeowners converting their homes to cottages that not only offer bed and breakfast services to customers, but also cater to their need for a non-commercial stay.”
Some experts say vacation rentals would ultimately see demand limited to the niche segment of travellers mentioned by InterGlobe’s Singh, although, given its low base, the market may be growing rapidly. One thing the business has going for it is the preference of the young to stay off the beaten path of hotels.
“This kind of alternative accommodation options is definitely growing very fast because it has a lower base to begin with,” said Deepak Jain, a research analyst at travel research firm PhoCusWright .
“Even though this segment will have only limited audience, including young people or individuals travelling either alone or with group of friends, there is a potential for this market to develop because of the travel demography, which is hugely skewed towards young side,” he said.