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Timeshare an emerging segment

— PHOTO: V. RAJU

VALUE FOR MONEY: Andhra Pradesh Tourism Development Corporation’s Haritha Coconut Country Resort at Dindi in East Godavari district.

With India growing as one of the key emerging markets in the hospitality industry, many hotels and holiday homes have started revamping and reinventing their business strategies to woo the customers. Factors such as pricing, locations, services and other things matter for a customer to select between a hotel and a holiday home.

When the holidaying concept took off, many preferred timeshare to hotel. The reason was simple. They want to be away from home but in a home-like atmosphere.

This attitude made this vacation holiday/timeshare industry to take a shape. When there were hotels offering services both in budget and premium categories, customers preferred timeshare resorts when it came to family holidaying.

Vacation ownership, commonly known as timeshare, has been growing globally but evolving in India and it has become a customer-choice product.

It has been creating a strong impact among Indian customers and has been growing rapidly over the last few years.

From the consumer’s perspective, timeshare accommodation costs less compared to hotels. When one becomes a member of a holiday resort, he/she owns a timeshare at a select resort for 25-30 years. It will offer one week of vacation time, which will be accumulated up to three weeks.

The choice of accommodations generally offered is: studio, one-bedroom and two-bedrooms on various seasons. The pricing for the accommodation is also based on seasons. Owning a timeshare gives the customer value for money. It also gives the right to use the accommodation and services without having to pay daily room charges. The room charges are adjusted in the annual maintenance paid by the customer and he/she will have to pay a nominal price for the food.

The advantage is that consumers can recover the cost in six to eight years within their 25-30-year period.

On the business side, the timeshare concept has been showing profitability.

The Indian timeshare industry has estimated the revenue so far at Rs. 750 crore. There are major players such as Mahindra Holidays, Royal Goan Beach Club, Sterling Holidays, Cambay, Country Vacations, Toshali Sands and Avalon.

The demand for timeshare products in India is likely to grow at about 16 per cent annually from 2006 to 2015, facilitated by supply growth of about 12 per cent annually over the same period, according to a report released by Group RCI and global real estate consultants, Cushman & Wakefield, “The spectrum of leisure real estate products in India”. This is further reflected by the growth in holiday exchange bookings that increased by 28 per cent in January-November 2008.

The report indicates that the average unit sale for a typical timeshare development is likely to grow at 3 per cent annually from 2006 to 2015. The average unit cost per day for a consumer is likely to grow at 4 per cent annually during the same period compared to 5-8 per cent for a pure hotel product.

However, with an estimated 41,600 pure product hotel rooms across major cities that will be furnished over the next four to five years, the markets are likely to see a drop in occupancy rates and rationalisation of average room rates in the long-term.

The timeshare industry in India is in its development stage and comprises about 4,640 timeshare units and 1.46 lakh members. Of this, the western region holds the largest share of members with 42 per cent of the total, followed by South (29 per cent), North (23 per cent) and East (6 per cent).

Radhika Shastry, Managing Director, Group RCI, India, has stated in the report that shared ownership of real estate, where multiple individuals own a piece of real-estate, offers considerable potential for developers, operators and financial institutions.

On the business side, some major players operate on a unique integrated mixed use business and correspondent revenue model. Others take resort creation (land identification and construction), member acquisition (sales and marketing) and member management (holiday planning and booking) as one entity.

Generally, most companies initially sell their timeshare memberships to customers and with that upfront cash flow, the assets are created. The members are entitled to holiday for an average of 12-15 months from the date of enrollment.

There is assured occupancy even in off-season and it does not go below 50-60 per cent. As far as revenue is concerned, there are multiple avenues such as upfront admission fee, entitlement fee, which is charged for 25 years, annual subscription fee and the interest income is generated from financing membership purchase.

However, it is different in hotels. The project is built first and then sold to the customer later. So there is a long wait for the asset to get created and the revenue to flow in.

As a result, there is high upfront cash flow and high interest rates for the builders. The occupancy and revenues are highly subject to seasonal and environmental factors. There is no long-term relationship with consumers.

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