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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
1 2 3 4 5 6 7 Executive Summary Indian Hospitality Alternate Products Relevance of Each Product to Key Stakeholders Focus on Timeshare Focus on Fractional Ownership Conclusion

E XE CUT IV E S UM M ARY
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
1

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The Spectrum of Leisure Real Estate Products in India

A C&W AND GROUP RCI PUBLICATION

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) 6 5 Visitors (in millions) 4 3 2 1 0 2000 2001 2002 2003 Year 2004 2005 2006 2007

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 Year

2004

2005

2006

2007

Source: Ministry of Tourism

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The Spectrum of Leisure Real Estate Products in India

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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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The Spectrum of Leisure Real Estate Products in India

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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, Private Residences as well as Condo Hotels. While timeshare, fractional ownership and private residences are primarily driven by utilisation of the product, a sense of ownership and lifestyle motivations, the condo product is primarily driven by a sense of ownership and a return on investment. 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

Investment
Condo Hotels

Ownership

Usage

Timeshare

Fractional Interest Private Residence Club

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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 23 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
• 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

Condo Hotels
• 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
• • • • Usually 2 to 3 bedrooms Average 6 to 7 weeks use with some rental activity Sold in a similar fashion to wholly owned homes Can have a rent back element

Private Residence Clubs
• • • • Usually 3 to 4 bedroom with very high-end furnishings Guaranteed high season availability of 4 to 6 weeks Sold as an alternative to wholly-owned second homes 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
• Product in establishment phase; limited supply; considerable potential demand • On sale of 85 to 65% of the inventory depending on total cost.

Fractional Ownership
• Product in early establishment phase; limited supply; considerable potential demand • On sale of 70% of the inventory

Condo Hotels

Private Residence Clubs

Hotels
• Medium to high in most established cities, due to proposed new supply and existing competitors • Long term payback

Barriers to entry in India

• Product in a very nascent • Product not entered the market; typically requires stage; demand likely to be considerable demand from second home buyers base and capital prior to seeking good investment development returns • On sale of 70% of the • Typically, prior to inventory development or within the first few years of operation (typically on sale of 75% of the units)

Development Cost Recovery

Exit Strategy

• On completion of timeshare membership period or anytime during the term if total asset value is discounted by remaining membership value

• This is a deeded product. • Upon sale of all units or at • On completion of membership period or any point during the term Once sold out developer anytime during the term if of operation (depending has very little involvement total asset value is on the terms within the discounted by remaining lease agreements and membership value management rights agreement)

• At any point during the operation of the hotel • Optional

Long Term Involvement Return on Investment Strategic Resilience Average

• Typically over the life • Typically over the life • Typically over the life • Optional, particularly if period of the membership period of the membership period of the membership returns are guaranteed to unit owners

Fair

Good

Source: Cushman & Wakefield Hospitality

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The Spectrum of Leisure Real Estate Products in India

Relevance to the Operator Timeshare
• Requirement of hotels in more than one location due to continued competitiveness in the market; relatively lower quantum of management fees on operation of a timeshare product

Fractional Ownership

Condo Hotels

Private Residence Clubs

Hotels

Barriers to entry in India

• Operator may also be in • Product not established in • Product not established in • Medium to high in most India; nature of the established cities, due to the form of a facilities India; growing hotel and product would require an proposed new supply and management company as serviced apartment experienced operator with existing competitors; entry ownership is linked to the product in key Indian exceptional capability of new operators and asset markets are likely to brands into India increase the barriers to entry

Development Cost Recovery Exit Strategy

• Maintenance cost charged • Maintenance cost charged • Unit owners may wish to • Maintenance cost charged • Operator is paid via to the consumer management fees exit the pool limiting to the consumer to the consumer operational efficiencies to the operator, particularly if the operator is brought in after sale of all units and a minimal unit requirement is not explicit in the lease agreement • On assignment of • Sale of management • On assignment of • On assignment of operational agreement or rights through assignment operational agreement or operational agreement or on completion of the term or on completion of term on completion of the term on completion of the term • Assignment of Management Agreement or on completion of the term

Long Term Involvement 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
• Payment of full (or near full) membership upfront or in first few years

Fractional Ownership

Condo Hotels

Private Residence Clubs • Perception of an exclusive private club with a shared ownership option

Hotels
• Value perception is primarily based on cost, brand or market positioning of the hotel

Barriers to entry in India

• Payment of partial asset • Investment motive where an asset is purchased cost despite application of typically based on its restricted use, with return potential potential for a return

Development Cost Recovery

• Use maybe anytime during • Use restricted to period allocated as per the year if it is points agreement based product, at any resort if affiliated with an exchange company • Typically associated with mid-market to first class quality, particularly if affiliated with a branded operation • Typically within a limited period immediately after membership payment

• Use typically for 21 to 28 • Use restricted to period • Use flexible throughout days but restricted to the year, but subject to allocated as per providing the operator with agreement rate variances due to an opportunity to seasonality capitalise on peak seasonal demand

Exit Strategy

• Exclusive and high end • Good quality perception • Good quality perception if • Good quality perception property is managed by an as property is managed by as property is managed by an operator similar to a operator an operator, particularly if hotel affiliated with a branded operation
• Asset share may be onsold, depending on the agreement terms • Asset may be on-sold, depending on the agreement terms

Long Term Involvement Return on Investment Strategic Resilience Average

• Asset share may be on-sold, depending on the agreement terms

• Asset maybe on-sold at any time

Fair

Good

Source: Cushman & Wakefield Hospitality

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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. Thomas, Fort Lauderdale and Puerto Rico were converted into timeshare projects but, in their desperate haste to make a sale, many of the projects failed due to poor legal structuring, financing and marketing. Nevertheless, although at this point timeshare projects were on a small scale, fragmented and relatively unregulated, timeshare had started to take off and by the end of the 1970s annual sales had risen to $50 million. 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
Typical Demographic Profile Average Age: Range of Age: Avg. Household Size: Avg. no of Children: Membership Gender Profile: (Source: Club Mahindra) 42 yrs 27 to 55 yrs 4 people 1.5 children 89.8% Male 10.2% Female

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hotel timeshare developments to chains of hotels and resorts providing consumers with the opportunity to buy vacation time at any of their properties nationally. The exchange company typically has service affiliations with a number of timeshare resorts and hotel chains worldwide. This enables the consumer to exchange time at any of the resort affiliates through the exchange company for a 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.

Affiliation Services Timeshare Report Exchange Company

ip sh er mb Me Ex ch an ge

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

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5,000

100%

Number of Timeshare Units (in 000s)

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2006 (E) 2007 (E) 2008 (E) 2009 (P) 2010 (P) 2011 (P) 2012 (P) 2013 (P) 2014 (P) 2015 (P)

80% 70% 60% 50% 40% 30% 20% 10% 0%

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% 90% 6,000 5,000 4,000 3,000 2,000 1,000

80% 70% 60% 50% 40% 30% 20% 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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Average estimated room rate (INR)

Average Estimated Unit Sale (%)

Estimated Average Occupancy Rate

4,500

90%

The Spectrum of Leisure Real Estate Products in India

A C&W AND GROUP RCI PUBLICATION

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% 41.78% 29.35% 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 East South 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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The Spectrum of Leisure Real Estate Products in India

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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 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 welldocumented 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.

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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.

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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.

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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

Cushman & Wakefield is the world's largest privately held commercial real estate services firm. Founded in 1917, it has 227 offices in 59 countries and more than 15,000 employees.The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within four primary disciplines:Transaction Services, Capital Markets, Client Solutions and Consulting Services. Cushman & Wakefield Hospitality provides a wide range of consulting services for hotels, resorts, serviced apartments and mixed-use developments. We specialise in operations analysis, market research, demand analysis and have developed a detailed understanding of the dynamics of the accommodation industry.This allows us to complete comprehensive market demand forecasts, which form the base for market and business assessments, financial projections and valuation services.Through the integration of consulting and valuation services with design management and project direction services, we can provide our clients with a full suite of services from site analysis and project conception, through market analysis and financial evaluation, to construction administration and project delivery. A recognised leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Center at cushmanwakefield.com/knowledge. For more information: Akshay Kulkarni Director - South Asia Cushman & Wakefield Hospitality Tel: +91 22 6657 5555 E-mail: akshay.kulkarni@ap.cushwake.com ©2009 Cushman & Wakefield All Rights Reserved

Group RCI, part of the Wyndham Worldwide family of companies, (NYSE:WYN) is the global leader in non-hotel leisure accommodations with exclusive access for specified periods to more than 67,000 vacation properties in nearly 100 countries. Organizationally, Group RCI is comprised of vacation exchange, including RCI®, the worldwide leader in timeshare and vacation exchange and provider of travel services to businesses and consumers and The Registry CollectionÒ, the world’s largest luxury exchange program; vacation rentals, including Endless Vacation RentalsSM , Landal Greenparks®, Novasol®, and more than 30 other vacation rental brands, through which vacationers 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

Authors of the report: Sohaila M Cushman & Wakefield Hospitality sohaila.m@ap.cushwake.com Juhie Tak Cushman & Wakefield Hospitality Juhie.tak@ap.cushwake.com Shaila Vivek Research & Business Analytics Group Cushman & Wakefield shaila.vivek@ap.cushwake.com

Disclaimer 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 information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete.

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www.grouprci.com

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©2009 Cushman & Wakefield All Rights Reserved