This limited debt growth reflects banks’ reluctance to finance the hospitality industry, which is vulnerable to economic cycles and has lengthy gestation periods. Banks perceive loans to hotels as high-risk, a sentiment that has only deepened due to the pandemic’s impact on tourism and occupancy rates. Given these constraints, the SLB model offers a much-needed alternative financing structure, enabling developers to raise capital without incurring additional debt. By partially selling the asset, developers can retain operational control while generating cash flow that would otherwise be tied up in real estate.

Addressing India’s Growing Need for Alternative Financing in Hospitality

India’s hotel industry is in dire need of alternative financing models, particularly as traditional lending from banks has dwindled. Unlike residential real estate, which can leverage strata sales (selling individual units to investors) to mitigate financial risk, the hospitality sector lacks such flexible financing structures. The SLB model, however, fills this gap. By allowing developers to monetize part of their inventory, SLB reduces reliance on bank loans and provides a self-financing asset that generates consistent cash flow, even in challenging times.

The underlying rationale of the SLB model lies in its ability to cater to the high capital requirements of the hospitality industry. Hotel construction and expansion are capital-intensive, with payback periods often extending to a decade or more. For developers looking to expand, locking in substantial capital over such long periods is financially prohibitive. By selling part of the inventory, developers can recoup their investment sooner, freeing up funds for further expansion or diversification.

Lessons from Mature SLB Markets: The US and UK Experience

In developed markets like the US and UK, the SLB model has proven highly effective, particularly in urban hubs and popular resort areas. In the UK, SLB properties typically sell at a 4-4.5% premium over non-SLB assets and yield returns between 4-6%. Investors value these assets for their assured rental income, which is professionally managed by experienced operators. The US also has a strong SLB market, with branded residential projects accounting for nearly 32% of global branded residential schemes. Hotel brands such as Marriott and Ritz-Carlton are key players, offering consistent returns of 5.5-7.5% and cementing SLB as a viable investment model in both business and leisure markets.

Globally, over 400 branded residential schemes have emerged, with a combined stock of more than 55,000 units, according to Savills Research. Hotel brands dominate this market, representing 85% of branded residence space. Marriott alone holds a 31% market share following its acquisition of Starwood, highlighting the strength of hotel-affiliated SLB properties. India can replicate this success by introducing SLB in both leisure and business destinations, tapping into the potential for professionally managed, high-yield hospitality assets.

Critical Factors for Successful SLB Implementation in India

For the SLB model to succeed in India, developers must follow a strategic approach. First, developers should aim to sell 60-70% of the property inventory, retaining 30-40% to ensure ongoing financial interest. The entire inventory should be managed by a professional operator, ensuring uniform standards of service and quality. In scenarios where a developer wishes to exit a project, they should ensure their remaining share is transferred to a single owner to maintain operational continuity.

Other essential elements include conducting thorough feasibility studies to gauge market demand, partnering with reputable hotel operators to enhance brand value, and engaging middle-income investors who are interested in second homes. Developers must also enlist experienced consultants to navigate complex legal and financial requirements and ensure RERA compliance to build investor trust. Furthermore, establishing a dedicated sales and investor relations team can strengthen investor confidence. An Asset Management Company (AMC) should be appointed to oversee the property’s maintenance, ensuring consistency in hygiene, safety, and brand standards.

The Financial and Strategic Benefits for Developers and Investors

The SLB model’s unique value proposition lies in its ability to address both financial and operational needs for developers and investors. For developers, the SLB model is a critical source of capital, reducing dependency on high-interest loans and mitigating the financial risks associated with debt. It allows developers to liquidate a portion of their property without losing operational control, making it possible to pursue expansion while maintaining a stake in the business. This model also significantly shortens the payback period, reducing it from the industry-standard 8-10 years to just 2-3 years when around 60-70% of the inventory is sold. This quicker payback period enhances the project’s financial viability and makes it more attractive to investors.

For investors, SLB offers the security of owning an income-generating asset without the complexity of operational management. Yields from SLB assets in India currently range between 4-4.5%, which is higher than standard residential real estate investments. With strategic expansion and brand alignment, SLB yields could potentially rise to 10-13%, rivalling other investment avenues. Investors also benefit from the stability and reputation associated with branded properties managed by professional operators, which ensures consistent service quality and guest satisfaction. This high level of professional management provides peace of mind for investors, knowing that their assets will be maintained to brand standards and optimised for revenue.

Case Studies of SLB Adoption in India

Several pioneering projects in India have embraced the Sale and Leaseback (SLB) model, showcasing its flexibility and potential for success in different market segments. Rhythm Hospitality has effectively leveraged SLB to drive its expansion, setting a new benchmark in the Indian hospitality industry. In 2020, Ginger Hotels initiated SLB-based projects by selling and leasing back properties in cities like Bengaluru and Goa. By 2024, Ginger Hotels had sold an additional six properties under SLB, cementing its commitment to an asset-light, flexible growth model.

A notable example of SLB’s adaptability is Ananta Udaipur, which implemented the model for its luxury resort villas. The project involved the sale and leaseback of individual villas, allowing investors to own premium leisure properties that yield regular income. Ananta Udaipur’s success points to the potential of SLB in catering to India’s rising demand for branded vacation destinations. By providing exclusive, income-generating assets in sought-after locations, Ananta’s model paves the way for similar luxury projects across other leisure destinations in India. This case demonstrates how SLB can meet the increasing demand for high-end, branded hospitality options while offering investors attractive returns.

Future Prospects: The Phased Growth of SLB in India

The Indian SLB model’s development can be broken down into three key phases. Phase 1 focuses on major leisure destinations like Goa, Kerala, Rajasthan and Himachal Pradesh, where demand for branded residences and service apartments is already high. These regions are among India’s top travel destinations, drawing both domestic and international tourists who seek luxury and convenience in their stays. By implementing SLB in these areas, developers can create self-financing assets in high-demand locations, thereby reducing reliance on traditional debt financing.

Phase 2 will see the model moving into urban tourism hubs such as Mumbai, Delhi, Pune and Bengaluru. The growing trend of “bleisure” (business + leisure) travel makes these urban centres attractive for SLB, as business travellers increasingly seek out extended stays that combine work and leisure. Branded residences and service apartments in these cities could offer flexible living spaces tailored to the needs of travelling professionals and corporate guests.

Finally, Phase 3 will expand SLB into pilgrimage destinations like Ayodhya, Varanasi and Gujarat and Tirupati. India has a rich cultural heritage, and religious tourism accounts for a significant portion of domestic travel. By offering branded accommodations in these locations, developers can tap into a steady flow of visitors who value both the spiritual and experiential aspects of their journeys. This approach aligns with India’s religious tourism market, which is projected to grow rapidly over the coming years.

With each phase, SLB will deepen its footprint across various market segments, from luxury resorts to urban residences and pilgrimage sites. This gradual, demand-driven expansion is expected to fuel SLB adoption nationwide, making it a mainstream model in India’s hospitality industry.

If you’re exploring alternative financing solutions for your hospitality projects or considering the SLB model for capital optimization, connect with us. We specialise in providing tailored consulting insights and project feasibility studies to help you leverage SLB to its fullest potential. Let’s discuss how this model can drive your growth strategy and set you on a path toward sustainable expansion.