The Buy-Lease-Operate (BLO) model has emerged as a prominent trend gaining momentum across the Indian real estate industry. This innovative strategy, particularly popularamong housing projects situated in tourist hubs and pilgrimage centers and near educational institutions, marks a significant departure from conventional property ownership models. With a combination of values like sustainability and profitability in the backdrop of evolving lifestyle preferences, the strategy changes the way people invest in and manage real estate.
At its core, the strategy involves the purchase of villas or flats within gated societies by individuals who later lease them to builders. These builders consequently hire property operators who handle the upkeep and renting activities of the units. The properties are eventually leased out to a heterogeneous client base which includes tourists on a holiday, expatriates seeking short accommodation, students at nearby colleges, and aged clients looking for assisted living facilities. This collaboration between landlords, builders, operators, and tenants is the source of a mutually rewarding environment that is currently reshaping the Indian real estate industry.
The main force boosting adoption is the promise of great financial results. The projected yields of 5-6% per year allow homeowners to use the returns to pay the loan and recover the initial investment in a short period. This is especially interesting to investors who can invest between INR 25-50 lakhs upfront because it allows them to generate passive income and enjoy property appreciation. By taking advantage of the home loan to pay part of the cost of the property, investors can better manage their cash flows and also achieve financial independence within 10-12 years. In other words, unlike traditional rental models, it ensures a stable income stream throughout the lease term, reducing risks associated with vacancies or non-payment.
The strategic location of properties is a key factor that determines the rental potential under the model. Scenic sites and pilgrimage centers are currently among the main priorities for investment due to their high tourist seasonality coupled with the year-round flow of visitors. Properties that are close to the universities also attract interest from the students seeking accommodation in the area, while the ones that serve assisted-living facilities serve the needs of the aged population. Owners achieve best results when they follow the market trends and consumer choices in allocating their resources.
However, despite its numerous advantages, the model is not without its challenges. Property owners should do due diligence to ascertain the viability and profitability of their investments, by considering the location, market demand, regulations, and rental management. Moreover, effective communication between all stakeholders is essential to ensure seamless operations and mitigate potential conflicts or disputes.
The rise of the Buy-Lease-Operate strategy signifies a shift in Indian real estate. As it gains traction, its adoption in niche markets is getting a good response. Coupled with technological advancements to streamline operations, regulatory reforms can help create a conducive environment for investment. These developments highlight its transformative potential, reshaping traditional property ownership models and tapping into previously untapped market segments. Embracing innovation and adapting to evolving trends, investors can harness its full potential, shaping the future trajectory of India’s real estate sector.
(The author is Amrita Gupta, Director of Manglam Group and president of CREDAI Rajasthan Women’s Wing.)
