BU S I N E SS

BR I E FI N G

The Spectrum of Leisure Real Estate

Products in India
Janu ar y 20 0 9 | A C& W an d grou p RC I pu b l i c at i on

C ONTENTS E XE CUT IV E S UM M ARY

1 Executive Summary
2 Indian Hospitality
3 Alternate Products
4 Relevance of Each Product to Key
Stakeholders
5 Focus on Timeshare
6 Focus on Fractional Ownership
7 Conclusion
There is no denying that the present global economic slow down will
impact the hotel development pipeline which is further likely to enable
absorption of supply into the market. However, the underlying demand
growth will be the true judge of this absorption rate as in the current age
of globalisation restoring economic equilibrium is the prime concern of
all countries. The growing popularity of the leisure industry in the
country today has also facilitated alternative hotel product offerings to
strengthen their foothold in the market, particularly those with an
ownership model that strongly focus on making 'holidaying' a habit.
Amongst these include the traditional timeshare, fractional ownership,
along with the condo hotels and private residence clubs products. The
paper discusses these holiday models in comparison to the pure hotel
product, exploring their relevance to key stake holders namely
developers, operators as well as consumers.

We hope to have been of substantial assistance to our readers.

INDIAN HOSPITALITY

India's share in world arrivals currently stands at 0.5% and its share of tourism revenue worldwide is 1.11%1. India's
promotion as a tourist hub was a slow starter, but over the years the native tourism industry has been growing
consistently owing to the economic liberalization as well as initiatives undertaken by the Ministry of Tourism on a
central platform as well as individual state tourism bodies on a regional platform. The Planning Commission
recognized tourism as an industry in June 1982 and since then, the growth in tourism has been phased out. With
each subsequent Five Year Plan, the growth plan has been refined and the simultaneous infrastructure development
has aided this spurge. The National Tourism Policy brought out by the Ministry of Tourism in 2002, positioned
tourism development as a national priority, focussed on enhancing and maintaining the competitiveness of India as
a tourist destination. It stressed on improving India's existing products and expanding these to meet new market
requirements. The launch of the 'Incredible India' campaign (2002) was a major initiative by the Government of
India, to promote the country as a tourist destination and it started reaping positive results a couple of years post its
1
World Tourism Organisation

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The Spectrum of Leisure Real Estate Products in India

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launch. These initiatives have paid off as India is considered as a popular destination on the world travel
map today. Seen as a cultural hub with its fairs & festivals all year round, it offers a variety of travel
destinations ranging from spiritual centres to wildlife sanctuaries, from snow capped mountains to
balmy beaches.

INTERNATIONAL VISITOR TREND (IN MILLIONS)

5
Visitors (in millions)

0 2000 2001 2002 2003 2004 2005 2006 2007

Year

Source: Ministry of Tourism

A rapidly growing middle class, the advent of corporate incentive travel and the multinational
companies into India boosted prospects for tourism. India's easy visa rules, public freedoms and its
many attractions as an ancient civilisation makes tourism promotion easier than in many other
countries. Further, the country has been seen as a viable investment destination by the developed
economies for some years now. The consistent growth rate has attracted foreign investments, leading to
tremendous rise in business travel. The growth in arrivals also contributed to a significant increase in the
incoming tourist receipts, leading to a growth in the tourist economy of the nation.

The recent robust growth experienced by the country has stimulated considerable growth in the Indian
hospitality industry, particularly in relation to Average Occupancy Rates and room rates to an extent

DOMESTIC VISITOR TREND (IN MILLIONS)

600

500
Visitors (in millions)

400

300

200

100

0
2000 2001 2002 2003 2004 2005 2006 2007
Year

Source: Ministry of Tourism

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that rates quoted by hotels in some Indian destinations have resulted in deterring international and
domestic leisure demand.

With time, there has been a tremendous expansion in the type and quality of hotel products in the
market. New hotel brands have entered the country and existing players have either diversified their
portfolio or further established current operations, to suit market needs.

The hospitality market in India has witnessed positive growth in recent years, with the key cities of
Delhi, Mumbai, Chennai, Kolkata, Hyderabad, Bangalore, Pune and Goa experiencing considerable
increase in demand as well as supply of hotel rooms. ARRs in hotels across India have increased
remarkably over the past few years. In the face of the growing Indian economy and increasing business
travel there is an apparent shortage of quality hotel rooms which has pushed up the ARR, especially in
metro hotels where corporate travel accounts for 85-90 per cent of the hotels' total business. The steep
rise in room rates and strong occupancy level in city hotels are the prime drivers of investments in this
sector.

The major cities typically average approximately 75% occupancy across the country. Average
occupancy rates and the average room rates are relatively high for most tier 1 cities. This is a cumulative
outcome of the economical growth, improving infrastructure and emergence of more commercial
hubs (tier 2 cities). The industry will undergo metamorphosis with new brands coming in and the
segments being further distinguished.

The last two years have witnessed a number of plans on the hotel development front. However, our
research indicates that the proportion of announcements to plans proceeding and actual development
is not 100%. Key reasons for this include the inability to source land at the right price to make the
development formula feasible, delays in securing land in respect of land sourcing and transactions,
raising cost of debt, lower availability of funds for new projects and escalating construction cost to
name a few. These factors are likely to slow down, or in some cases cease hotel development.

There is no denying that the present global economic slow down will impact the hotel development
pipeline which is further likely to enable absorption of supply into the market. However, the underlying
demand growth will be the true judge of this absorption rate as in the current age of globalisation
restoring economic equilibrium is the prime concern of all countries.

The growing popularity of the leisure industry in the country today has also facilitated alternative hotel
product offerings to strengthen their foothold in the market, particularly those with an ownership
model that strongly focus on making 'holidaying' a habit. Amongst these include the traditional
timeshare and fractional ownership. These are popular holiday models internationally, along with the
condo hotels and private residence clubs products. These alternative models, in particular the timeshare
product, provides a degree of insulation to key stakeholders (including developers, operators and
consumers) compared to the pure hotel product. However, while the risk associated with the timeshare

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product is lesser compared to the pure hotel product, the ability for the product to maximise returns
(from a developer's and operator's perspective) is relatively lower than the hotel product. Timeshare
found a place in the tourism policy of India in the year 2001 and the Ministry of Tourism, in the year
2006 introduced a scheme for classification of Timeshare Resorts, for which guidelines have already
been framed.

ALTERNATE PRODUCTS

How different are these alternative products from Traditional Hotels

The four alternative products discussed in this
paper are: Timeshare, Fractional Ownership,
Investment
Private Residences as well as Condo Hotels.
While timeshare, fractional ownership and Condo
Hotels
private residences are primarily driven by
utilisation of the product, a sense of ownership

Ownership
and lifestyle motivations, the condo product is
Usage

primarily driven by a sense of ownership and a Fractional

Timeshare Interest
return on investment. Private
Residence
Club
Timeshare
Timeshare offers a period of use for a certain
Lifestyle
accommodation each year in a managed resort
environment in desirable tourist destinations.
Timeshare offers flexibility and variety to vacation ownership by allowing owners to trade their vacation
weeks for a similar unit in the global network (subject to the resort being affiliated to a global timeshare
exchange company). This product is usually purchased in one-week increments and the use rights can
either be fixed or floating. The timeshare model was first introduced into the Indian market by Sterling
Hotels and Resorts with an increasing number of competitors.

Condo Hotels
These products offer the investor whole deeded ownership of a managed room or suite within a luxury
hotel development or a residential property development. Typically the owner has between 21 to 60
days annual use and the remaining time is used by the management company to generate revenue
through an organized rental programme. Proceeds are split between the owner and the management
company.

Fractional ownership
A Fractional property, which is deeded, is sold to buyers whose primary purchase motivation is to buy
and use a second home. The product is typically a condominium, attached townhouse or smaller stand
alone homes such as a cottage or villa. The most common share size is a quarter share which gives

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The Spectrum of Leisure Real Estate Products in India

A C&W AND GROUP RCI PUBLICATION

owners approximately 12 to 13 weeks use per year. These weeks can be used, gifted, rented or
exchanged though a third-party exchange company. The properties are mid to high end in forms of 2-
3 bedroom luxury apartments, condominiums or family houses in a secluded setting – urban, beach or
mountain location. They also often include a wider range of services like concierge service butler
service etc.

Private Residence Clubs

Offer owners luxurious, typically purpose-built properties in prime locations and longer share times as
well as a wide array of additional benefits. PRCs have emerged as a growing alternative to second home
ownership, where the ownership is deeded. The low member-to-property ratios simplify the
reservation process and ensure that the property remains exclusive. Private Residence Club
accommodations are spacious 3 to 5 bedroom units, luxurious and well-appointed with furnishings
comparable to a 5 star hotel, except that the member is an owner and pays annual HOA dues instead of
renting by the night.

The following tables provide a brief overview of each product offerings.

Traditional Timeshare Condo Hotels

• Outright deeded purchase or Right-to-use of holiday
accommodation
• Often a week used for exchange or points-based currency for
flexibility
• Ranges from studio to 2 bedroom accomodation
• Purchase price approximately INR 3 lacs
• Annual fees of ranging from INR 7,000 to 10,000 per week
• Commonly managed to operate as a hotel with individual units
sold to consumers
• Hotel rooms put into a condominium legal structure and sold
individually
• Owner receives personal use rights of between 21 and 60
days per year
• Purchasers join a rental pool and the property operates as a
hotel
• Owners may receive upto 50% of the rental income proceeds
from the unit

Traditional Fractional Private Residence Clubs

• Usually 2 to 3 bedrooms • Usually 3 to 4 bedroom with very high-end furnishings
• Average 6 to 7 weeks use with some rental activity • Guaranteed high season availability of 4 to 6 weeks
• Sold in a similar fashion to wholly owned homes • Sold as an alternative to wholly-owned second homes
• Can have a rent back element • Limited rental activity

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RELEVANCE OF EACH PRODUCT TO KEY STAKEHOLDERS

With travel booming in the region and major development projects underway, shared ownership of real
estate, where multiple individuals own the right to use a common piece of real-estate for an agreed
upon amount of time, offers considerable potential for developers, operators and financial institutions.

The more affluent consumer market is still willing to spend money on second home real estate,
including higher end Private Residence Clubs, when they are convinced there is value for this real estate
and they find something they perceive as exceptional. Location has become an even more important
determinant of success for all hospitality related products.

The key stakeholders across all products may be largely classified into developers, operators and
consumers. The relevance of each product to each stakeholder group is detailed in the table below:

Relevance to the Developer

Timeshare Fractional Ownership Condo Hotels Private Residence Hotels

Clubs
• Product in establishment • Product in early • Product in a very nascent • Product not entered the • Medium to high in most
Barriers to phase; limited supply; establishment phase; stage; demand likely to be market; typically requires established cities, due to
entry in considerable potential limited supply; from second home buyers considerable demand proposed new supply and
India demand considerable potential seeking good investment base and capital prior to existing competitors
demand returns development

• On sale of 85 to 65% of • On sale of 70% of the • Typically, prior to • On sale of 70% of the • Long term payback
Development the inventory depending inventory development or within the inventory
Cost on total cost. first few years of operation
Recovery (typically on sale of 75%
of the units)
• On completion of • This is a deeded product. • Upon sale of all units or at • On completion of • At any point during the
timeshare membership Once sold out developer any point during the term membership period or operation of the hotel
period or anytime during has very little involvement of operation (depending anytime during the term if • Optional
Exit the term if total asset on the terms within the total asset value is
Strategy value is discounted by lease agreements and discounted by remaining
remaining membership management rights membership value
value agreement)
• Typically over the life • Typically over the life • Optional, particularly if • Typically over the life
Long Term period of the membership period of the membership
period of the membership returns are guaranteed to
Involvement
unit owners

Return on
Investment

Strategic
Resilience

Average Fair Good

Source: Cushman & Wakefield Hospitality

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 The Spectrum of Leisure Real Estate Products in India

Relevance to the Operator

Timeshare Fractional Ownership Condo Hotels Private Residence Hotels

Clubs
• Requirement of hotels in • Operator may also be in • Product not established in • Product not established in • Medium to high in most
more than one location the form of a facilities India; growing hotel and India; nature of the established cities, due to
due to continued management company as serviced apartment product would require an proposed new supply and
Barriers to
competitiveness in the ownership is linked to the product in key Indian experienced operator with existing competitors; entry
entry in
market; relatively lower asset markets are likely to exceptional capability of new operators and
India
quantum of management increase the barriers to brands into India
fees on operation of a entry
timeshare product
• Maintenance cost charged • Maintenance cost charged • Unit owners may wish to • Maintenance cost charged • Operator is paid via
Development to the consumer to the consumer exit the pool limiting to the consumer management fees
Cost operational efficiencies to
Recovery the operator, particularly if
the operator is brought in
Exit after sale of all units and a
Strategy minimal unit requirement
is not explicit in the lease
agreement
• On assignment of • On assignment of • Sale of management • On assignment of • Assignment of
Long Term operational agreement or operational agreement or rights through assignment operational agreement or Management Agreement
Involvement on completion of the term on completion of the term or on completion of term on completion of the term or on completion of the
term

Return on
Investment 2

Strategic
Resilience

Average Fair Good

Source: Cushman & Wakefield Hospitality
2
Assuming all products are operated under a management contract and condominiums under a management rights agreements

Relevance to the Consumer

Timeshare Fractional Ownership Condo Hotels Private Residence Hotels

• Payment of full (or near
Barriers to full) membership upfront
entry in or in first few years
India
• Use maybe anytime during • Use restricted to period
the year if it is points
Development
based product, at any
Cost
resort if affiliated with an
Recovery
exchange company
• Typically associated with
mid-market to first class
Exit quality, particularly if
Strategy affiliated with a branded
operation
• Typically within a limited
Long Term period immediately after
Involvement membership payment
Clubs
• Payment of partial asset • Investment motive where • Perception of an • Value perception is
cost despite application of an asset is purchased primarily based on cost,
exclusive private club
restricted use, with typically based on its brand or market
with a shared
potential for a return return potential positioning of the hotel
ownership option
• Use typically for 21 to 28 • Use restricted to period • Use flexible throughout
allocated as per days but restricted to allocated as per the year, but subject to
agreement providing the operator with agreement rate variances due to
an opportunity to seasonality
capitalise on peak
seasonal demand
• Good quality perception if • Good quality perception • Exclusive and high end • Good quality perception
property is managed by an as property is managed by as property is managed by
operator an operator similar to a an operator, particularly if
hotel affiliated with a branded
operation
• Asset share may be on- • Asset may be on-sold, • Asset share may be • Asset maybe on-sold at
sold, depending on the any time
depending on the on-sold, depending on
agreement terms agreement terms the agreement terms

Return on
Investment

Strategic
Resilience

Average Fair Good

Source: Cushman & Wakefield Hospitality
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A C&W AND GROUP RCI PUBLICATION

FOCUS ONTIMESHARE

The Origin of Timeshare

An idea which had a lot in common with timeshare was put into practice in 1963 when, at a hotel in
Ticino, Switzerland, a German named Alexander Nette developed an innovative concept. His idea was
to sell shares in the business, each share giving its owner right-of-residence points. The timeshare
owners were therefore called shareholders or partners. By 1968 Hapimag, the company which arose
from this original idea had 8,000 shareholders. It now has more than 125,000 shareholders and 4,800
apartments at 53 locations in 15 countries.

By 1967, a similar concept was being introduced by one of the largest construction companies in
France, Les Grands Travaux de Marseille. It was the first classic holiday timeshare programme in the
world. Fixed units were sold for holiday purposes at a ski resort called Superdévoluy in the French Alps.
With its slogan 'Stop renting a room – buy the hotel, it's cheaper', it was an immediate success as the
purchase of the holiday weeks brought with it, the guarantee of reservations for those who wanted to
ski in the area.

The first timeshare plan was introduced in the US in 1968, with the conversion of a hotel in Hawaii, but
not much was really heard of timeshare there until the short-term collapse of the whole-ownership
condominium sector in 1974.

During the oil crisis in the mid-1970s, coming after a building boom in Florida, the idea of timeshare
was adopted as the answer to the fall in the property market. Lowering the prices of units by converting
them into weekly intervals meant that more people could afford them.

Some faltering condominium projects in St. Typical Demographic Profile

Thomas, Fort Lauderdale and Puerto Rico were
Average Age: 42 yrs
converted into timeshare projects but, in their
desperate haste to make a sale, many of the projects Range of Age: 27 to 55 yrs

failed due to poor legal structuring, financing and Avg. Household Size: 4 people
marketing. Nevertheless, although at this point
Avg. no of Children: 1.5 children
timeshare projects were on a small scale, fragmented
and relatively unregulated, timeshare had started to Membership Gender 89.8% Male

take off and by the end of the 1970s annual sales had Profile: 10.2% Female
risen to $50 million. (Source: Club Mahindra)

Profile of the Timeshare Product in India

The timeshare industry globally comprises of over 5,425 resorts with approximately 6.7 million owners
representing approximately 10.7 million timeshare weeks across 200 countries.

The timeshare industry in India is at a nascent stage. The industry in India has grown from single resort

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hotel timeshare developments to chains of hotels

Affiliation
and resorts providing consumers with the
opportunity to buy vacation time at any of their Services
Timeshare
properties nationally. The exchange company Report Exchange
Company
typically has service affiliations with a number of
timeshare resorts and hotel chains worldwide. This

s
ip

ice
Sa

sh
les

rv
Ma Fe

er
enables the consumer to exchange time at any of the

Se
&
int es

mb
Se

ge
en

Me

an
rvi
resort affiliates through the exchange company for a

an

ch
ce
ce

Ex
fee.

The advent of timeshare in India has also resulted in
the establishment of regulatory bodies which ensure
authenticity and safeguard consumer interests. The
All India Resort Development Association
(AIRDA) focuses on ensuring that there is no false
advertising, that each project is clearly designated as
a timeshare and that timeshares are run by licensed
operators.
Performance of the Timeshare Industry in
India
The timeshare industry in India comprises of
approximately 4,640 timeshare units and 146,450
members representing approximately 241,330
timeshare weeks.
Member
Key Timeshare Transaction Facts
Growth in transaction bookings by Indian
members (YOY Jan 08 to Nov 08): + 28%
Growth in transaction bookings by
International members into India
• Month of Nov 08: + 39%
• Month of Dec 08: - 26%
• Month of Jan 09: + 51%
Note:Transaction bookings also reflect
memberships purchased in advance and do not
reflect the purchasing capacity of timeshare in
the current economic environment
(Source: Group RCI)

The robust economy has facilitated considerable growth in per capita income, which in turn has
increased the discretionary spending of a large section of the population. Destinations such as Goa,
Kerala and Rajasthan, which were known to be hot spots for international visitors, have seen a change in
the visitor profile with more demand registered from the domestic markets. This has resulted in
considerable growth in room tariffs, some flattening out of seasonality as well as a situation of limited
hotel supply during the peak season. Timeshare has been credited for opening up new destinations like
Coorg and Munnar to tourists across India which were earlier known and visited by very region specific
tourists.

The timeshare concept has, to an extent, provided a solution by offering relatively affordable vacation
ownership packages for the same price at multiple locations. The perception of a 'paid holiday' (due to
the advance payment nature of the concept) has also been received favourably by consumers and is
likely to grow in popularity over the short term.

Based on our research, demand for timeshare hotel product in India is likely to grow at approximately

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The Spectrum of Leisure Real Estate Products in India

A C&W AND GROUP RCI PUBLICATION

5,000 100%

4,500 90%
Number of Timeshare Units (in 000s)

Estimated Average Occupancy Rate

4,000 80%

3,500 70%

3,000 60%

2,500 50%

2,000 40%

1,500 30%

1,000 20%

500 10%

0 0%
2006 (E) 2007 (E) 2008 (E) 2009 (P) 2010 (P) 2011 (P) 2012 (P) 2013 (P) 2014 (P) 2015 (P)
Year

Total Timeshare Supply Total Timeshare Demand Average Unit Sale

Source: RCI,We note the above estimates are indicative only and represent typical performance of a 1 bedroom
apartment. Please note that further research is necessary to understand the true potential of the timeshare industry in India)

16% per annum from 2006 to 2015, facilitated by supply growth of approximately 12% per annum over
the same period. The average unit sales for a typical timeshare development (eg: 1 bedroom apartment
unit sale from a consumer perspective) is likely to grow at 3% per annum from 2006 to 2015.

Most timeshare products in India are typically positioned at the mid market to first class categories. We
understand that the market is likely to experience some growth in supply in the five-star to luxury hotel
categories. As per our research, the average unit cost per day for a consumer is likely to grow at
approximately 4% per annum from 2006 to 2015, compared to approximately 5% to 8% for a pure hotel
product 3.

100% 6,000
90%
Average estimated room rate (INR)

5,000
Average Estimated Unit Sale (%)

80%
70%
4,000
60%
50% 3,000
40%
2,000
30%
20%
1,000
10%
0%
2006 (E) 2007 (E) 2008 (E) 2009 (P) 2010 (P) 2011 (P) 2012 (P) 2013 (P) 2014 (P) 2015 (P)
Year
Average Unit Sale Average Unit Cost Per Day

(Source: RCI,We note the above estimates are indicative only and represent typical performance of a 1 bedroom
apartment. Please note that further research is necessary to understand the true potential of the timeshare industry in India)
3
Growth is based on average year on year increase in ARR for hotels

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Impact of branded hospitality players and

Timeshare Member in India
reputed conglomerates is the need of the
hour. As in other international markets, 5.98%
29.35% 41.78%
brands have made timeshare an important
part of their product portfolio, and thereby
created a huge impact by not only driving up
the average purchase price but also creating a
huge awareness. The credibility of a brand
plays an important part in the consumers' 22.9%
psyche due to the conceptual nature of the
West North South East
product. Potential consumers, while agreeing
to the benefits of the product, have often Source: Group RCI
cited the lack of branded players as their
reason for not purchasing timeshare, thus indicating a requirement for both credibility and glamour
in the product.

The timeshare industry in India weighted towards west India owing to considerable capture by
Mumbai, Pune, Ahmedabad, Surat, etc. The northern region includes NCR, Lucknow, Punjab,
Jaipur, etc and represents approximately 23% of the timeshare industry. East and south India
represent approximately 6% and 29% of total timeshare members.

Constraints and Pitfalls of the Timeshare Product

There are a number of constraints and pitfalls as well as opportunities and advantages associated
with the timeshare product.

Constraints and Pitfalls:

• Weak and inconsistent tour flow driving high marketing costs
• Old-fashioned sales tactics with inconsistent close rates
• Bad product design that leads to off-schedule refurbishment
• Ineffective property management which leads to high maintenance fees and/ or non-payment
by owners
• Generally lower rate achievability for resorts with partial timeshare product, compared to rates
achieved by pure hotel product

Opportunities and Advantages:

• Location of resort does not necessarily require a location-specific demand catchment area
• Product is based on a customer centric property management approach for holiday makers
• Global exchange affiliation with inventory where clients travel (subject to the resort being
affiliated to a global exchange company)
• Multi-location holidays for the consumer at relatively the same cost (excluding additional fees
associated with a national or international vacation transfer)

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• Opportunity for a pure hotel product to maximise on occupancy and capture demand by
incorporating a timeshare quota
• Opportunity for operators to link loyalty programs to vacation ownership management
companies to create a USP and differentiate themselves from competitive operators. This is also
likely to facilitate some growth in loyalty program members as well as facilitate some demand
for timeshare specific rooms within a resort or hotel
• Opportunity for the developer in retrieving a large portion of development cost either before
the resort is operational or within the first few years

FOCUS ON FRACTIONAL OWNERSHIP

While the timeshare product has experienced some growth in recent years in India, the fractional
ownership model is yet to be established in the organised sector.

Profile of the Fractional Ownership Product

The fractional ownership concept is defined as the selling of resort real estate in intervals of more
than one week but in less than whole ownership. Shares or 'fractions' typically range from two
weeks of ownership to a one-quarter (three months of ownership).

Fractional ownership is a form of a holiday ownership programme longer than the traditional one
or two-week timeshare product. They have been an increasingly important element in the holiday
ownership industry since the late 1990s in the USA where the fractional ownership model began to
attract interest after the Tax Reform of 1986 which reduced the utility of second homes as tax
shelters. Faced with increased costs resulting from unused holiday homes and the difficulty of
renting them out, the traditional second home buyer began looking for alternatives. The fractional
ownership model offered an appealing compromise; the right to occupy the unit for a portion of
the year tailored with their expected usage pattern – from four weeks to 13 weeks – at a price that
reflects the period used only, coupled with a second home interest deduction.

For developers too, the concept was attractive, providing an affluent, newly interested market.
Profit margins are likely to be higher in the fractional ownership model than in full-unit second
homes sales, closer to timeshare margins and with fewer units to sell, marketing costs are lower than
traditional timeshare programmes. Usually, the consumer obtains the right to occupy the unit on a
rotational basis, enabling each consumer to use the holiday home during each season of the year.

Typically, six purchasers buy specific calendar months so that owner number one, in year one would
have January and July, with owner number two having February and August, owner three having
March and September so on and so forth, but with the calendar revolving forward by one calendar
month each year, so that over a six year period, each of the owners would have had an entitlement
to utilisation of all calendar months.

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The Spectrum of Leisure Real Estate Products in India

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The fractional interest concept has existed for a number of years internationally. For example,
individual friends or relatives collectively buy a holiday home and share in its use, in accordance
with a predetermined schedule. Over the years, developers in USA have sold fractions of whole
ownership and thereafter have provided management services to the owners.

Commonalities between High-End Fractional Ownership and PRCs

The high-end and luxury Fractional Ownership product shares a number of common
characteristics with Private Residence Clubs (PRC). The key features of a luxury fractional home set
it apart from traditional timeshare as well as those fractional interests positioned in the low or
moderate tiers of the market.

In addition to share size, other differentiators include higher product cost, higher price points and
lower marketing costs. The fractional product is further segmented with the PRC combining all the
benefits of fractional ownership but with a significant overlay of amenities and services such as
would typically be found within a five-star hotel, with related brand standards and assurances and
targeted only at the most affluent consumers.

PRODUCT CONCEPT

High disposable income is associated with more leisure time and a preference for luxurious
surroundings, what are often termed 'the money rich, time poor' segment. In the case of affluent
households with minimal leisure time, much of the promotional emphasis is placed on the well-
documented psychological and spiritual need for family vacations. In response to a desire for a high
quality alternative to a wholly owned second home, without the associated costs, hassles and
responsibilities, sales of fractional interests of luxury condominiums, townhouses and single family
cottages/ homes have demonstrated a market with considerable untapped demand in India as well
as internationally.

The coupling of the concept of a private club with shared ownership is a recent trend that adds
sophistication and a higher level of exclusivity to the product. Included are elements such as a
private clubhouse and a range of five star hotel services that are not available with wholly-owned
resort real estate. The club is structured to function like a private golf club where the members are
entertained with social events and form social relationships with other members. The PRC is
marketed as a real estate investment, not vacation time. The emphasis is on 'relationship selling'
rather than 'mass merchandising'.

The PRC concept strives to create exclusivity and a sense of belonging while catering to the
sophisticated wealthy buyer at the top of the social strata. The competition for PRCs arises from
wholly owned vacation homes and not timeshare, as access available to the general public detracts
from this exclusivity. Owners or members over time have shown a willingness to pay a premium for
the added security and social advantages afforded by a PRC.

INDIA REPORT | JANUARY 2009 13

The Spectrum of Leisure Real Estate Products in India

A C&W AND GROUP RCI PUBLICATION

Product characteristics
In general, three-bedroom units are the most common fractional unit type, followed by two
bedrooms. While the unit mix varies somewhat by location, three bedrooms typically account for
one-half to two-thirds of all units, while two bedrooms comprise roughly one third of the supply.
Four-bedroom homes have also been gaining in popularity. The market is expressing a preference
for larger units, particularly in the more elite resort locations. This follows the logic of buyer
motivation being an alternative to second home ownership.

A second home will generally provide two or more bedrooms and allow greater flexibility in terms
of use. The fractional and PRC buyer prefers to retain a certain degree of flexibility. Typical sizes
range from 1,800 to 2,000 square feet for two bedrooms and 2,200 to 2,600 square feet for three
bedrooms. Given that a luxury fractional home competes against whole ownership, the buyer is
more focused on the size, quality and use structure of the programme than the price, which
becomes secondary considering a cost per share at 20-25% of whole ownership for comparable size
and quality.

CONSTRAINTS AND PITFALLS OF THE FRACTIONAL OWNERSHIP PRODUCT

There are a number of constraints and pitfalls as well as opportunities and advantages associated
with the fractional ownership product.

Constraints and Pitfalls

• Location of the development is of importance as the consumer makes frequent trips to the
same location. Most often the cost associated with a premium location is relatively high
• Amenities provided are not always consistent with purchasers interest
• Excessive or under-utilised amenities which drive annual fees
• Product does not meet the target market (e.g. unit size)
• Product quality is inconsistent with location quality
• Uncertainty or lack of comfort of sharing a deeded property with others

Opportunities and Advantages

• Known usage patterns meet availability
• Friends and family participation or involvement
• Lifestyle fulfilment without the burden of whole ownership
• Financial capability which may limit purchasing full ownership of a second home
• Opportunity for developers to promote fractional ownership as an option to full ownership in
the current market scenario, particularly given the relatively high supply nature of the residential
market in some key cities in India.

INDIA REPORT | JANUARY 2009 14

The Spectrum of Leisure Real Estate Products in India

A C&W AND GROUP RCI PUBLICATION

CONCLUSION

The future of the timeshare and fractional ownership products in the Indian real estate market is
likely to be governed by several factors including price appreciation in the resale market, the degree
to which development financing is available in the future, which has been a major constraint to the
growth of the supply in the past and over the short to medium term given the current economic
environment, the rate at which consumer awareness of the product increases in the future, the
financial success of future projects as well as the extent of long-term return on investment that
each product is able to generate, particularly in the current economic environment. The fractional
ownership model is likely to become increasingly popular in the current market environment where
an asset may be purchased for a fraction of the cost with associated restricted use. The model
allows for easy exit and also provides an opportunity for capital gain. The Timeshare model is likely
to also gain considerable popularity in the domestic market, driven by the perception of a relatively
discounted cost of a holiday at the time of utilization compared to the hotel product. In the current
economic environment it is also likely that the timeshare utilization may experience more demand in
urban city hotels with some transference of business demand from traditional hotels to timeshare
hotels as a cost saving mechanism.

Due to the relative immaturity of the timeshare and fractional ownership industry, it is difficult to
forecast the degree to which the above factors will influence growth positively or adversely. As the
market gains experience and comfort with the product, it is likely that innovative strategic and
marketing initiatives will facilitate a means of meeting consumer needs through product design,
pricing and usage plans.

With a slow down in the US economy and its impact on Asian markets there is a lot of speculation
and uncertainty in the industry especially on absorption of planned hotel supply in the coming
years. A considerable amount of money is being invested and major alliances have been formed
which indicate a positive outlook and strengthens the market sentiment. An estimated 41,600 hotel
rooms across major 9 cities will be furnished over the next four to five years. Most of these hotel
rooms correspond to hotels with brand affiliations and are in various stages of planning and
development. With several proposed properties under construction, the markets are likely to see a
drop in the occupancy rates and rationalisation of average room rates in the long term. The current
global economic environment is likely to also impact the hotel industry in the medium term as it is
primarily driven by business and tourism; but as most businesses, there will only be a cyclical dip.

In the wake of the current economic environment, hotels and alternative commercial
accommodation products are likely to focus more on sustainability and implement performance
improvement and asset management strategies in an effort to combat short (e.g. Mumbai blasts),
medium (e.g. economic slowdown) and long term (e.g. considerable new supply pipeline) obstacles,
improving their resilience and reducing risk, to an extent, in the long term.

INDIA REPORT | JANUARY 2009 15

The Spectrum of Leisure Real Estate Products in India
A C&W AND GROUP RCI PUBLICATION
Bibliography:
Brochures / Information booklets
• World Economic Outlook, October 2008 – International Monetary Fund.
• The Global Competitiveness Reports 2008-09, October 2008 – World Economic Forum.
• “Made in India”, September 2005 - McKINSEY and Confederation of Indian Industries (CII).
• Industrial, Investment and Infrastructural Policy of Maharashtra – 2006,
Government of Maharashtra.
• Gujarat Industrial Policy – 2003, Government of Gujarat.
• Website: www.sezindia.nic.in
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Founded in 1917, it has 227 offices in 59 countries
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This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material.The
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INDIA REPORT | JANUARY 2009
Group RCI, part of the Wyndham Worldwide Authors of the report:
family of companies, (NYSE:WYN) is the global
leader in non-hotel leisure accommodations with Sohaila M
Cushman & Wakefield
exclusive access for specified periods to more than
Hospitality
67,000 vacation properties in nearly 100 countries.
sohaila.m@ap.cushwake.com
Organizationally, Group RCI is comprised of
vacation exchange, including RCI®, the worldwide Juhie Tak
leader in timeshare and vacation exchange and Cushman & Wakefield
provider of travel services to businesses and Hospitality
consumers and The Registry CollectionÒ, the Juhie.tak@ap.cushwake.com
world’s largest luxury exchange program; vacation
rentals, including Endless Vacation RentalsSM , Landal Shaila Vivek
Greenparks®, Novasol®, and more than 30 other Research & Business Analytics Group
vacation rental brands, through which vacationers Cushman & Wakefield
shaila.vivek@ap.cushwake.com
can rent a wide variety of property types, from city
apartments to country cottages to unique villas; and
NorthCourse®, Leisure Real Estate Solutions, an
international leader in providing a full spectrum of
advisory, research, asset management and turnkey
solutions and services. Collectively, the company
delivers vacation experiences to leisure travellers
around the world and provides products and
services to business customers that support the
growth of the leisure real estate industry.Wyndham
Worldwide Corporation is one of the world’s
largest hospitality companies with leading brands in
lodging franchising, vacation ownership, vacation
rentals and vacation exchange. For additional
information visit www.grouprci.com or the media
centre of www.wyndhamworldwide.com
For more information:
Anin Bagchi
Director - Business Development
Group RCI
Board no: +91 80 41849207 / +91 98860 40505
Email: anin.bagchi@rci.com
16
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