Property Types
What is a Service Apartment?
The yields are the best in Indian residential. And the reason they are the best is that what you are doing may not be permitted.
The short answer
A service apartment is a furnished flat, let SHORT-TERM, with hotel-like services — housekeeping, linen, sometimes a front desk.
The yields are genuinely excellent — far better than a normal let. That is why people do it.
And here is the problem: it may be COMMERCIAL USE. Your society's bye-laws may forbid it. The zoning may forbid it. And the yield is high precisely because of that risk.
What a service apartment is
- A fully furnished residential unit
- Let on a short-term basis — nights, weeks, a month or two
- With services — housekeeping, linen, wifi, sometimes reception and breakfast
- Marketed as an alternative to a hotel, usually to business travellers and relocating employees
Increasingly, this also describes a flat let out on short-stay platforms — which raises exactly the same questions, and rather more neighbours' complaints.
Why the yields are so good
Long let vs short let
₹1 crore flat, near a business district.
- Normal long let
- Monthly rent
- ₹28,000
- Annual, gross
- ₹3,36,000 — 3.4% yield
- Service apartment
- Nightly rate
- ₹3,500
- At 65% occupancy
- ≈ ₹8,30,000 gross
- Less: furnishing, housekeeping, platform fees, utilities, management
- Substantial
- Net, realistically
- Still well above a long let
The gross number is seductive. The net is a different business:
• Furnishing — ₹5–15 lakh, and it wears out
• Housekeeping, between every guest
• Platform commission — 15–20%
• Utilities — you pay them, not the tenant
• Management, if you are not doing it yourself — and doing it yourself is a job
• Vacancy — 65% occupancy is a good year, not a given
• Wear and tear — dramatically higher than a long tenant
• Seasonality — and a bad quarter is a bad quarter
It is a small hospitality business, not a passive rental. Price it as one.
Is it actually allowed? — the question to answer FIRST
1. THE SOCIETY'S BYE-LAWS.
Many housing societies and apartment associations expressly prohibit short-term letting, commercial use, or 'paying guest' arrangements. Read the bye-laws before you buy, not after.
And even where they do not prohibit it, your neighbours will object — to the strangers, the luggage at midnight, the lift traffic, the security questions. Societies have passed resolutions banning it. Some have won.
2. THE ZONING.
Running a hospitality business from a residential unit may be a change of use — which the master plan and the local bye-laws may not permit. This has been litigated, in several cities, and it has not always gone the operator's way.
3. LICENSING AND REGISTRATION.
Depending on the city and the scale, you may need police registration of guests, a trade licence, or a hospitality registration. Rules differ by state and are tightening.
What to check BEFORE you buy — in this order
- READ THE SOCIETY BYE-LAWS. Do they permit short-term letting? Get it in writing. This is question one, and if the answer is no, there is no question two.
- Ask the association directly. Not the builder. Not the broker. The association.
- Check the ZONING in the master plan. Is commercial or hospitality use permitted?
- Ask what other owners are doing. If several units already operate this way and nobody has objected, that tells you something real. If none do, ask why.
- Check the local licensing regime.
- Run the NET numbers — not the gross. With honest occupancy and honest costs.
- Ask what happens if it's banned next year. Would the flat still work as a normal let, at the price you paid? If not, you are betting the whole purchase on a permission you do not control.
“If short-term letting were banned in this building tomorrow, would this still be a sensible purchase at this price?”
If yes — go ahead. The short-let yield is an upside, not the thesis.
If no — you are not buying a flat. You are buying a permission, from people who can withdraw it, and who may well decide to.
Tax and GST — it is not ordinary rent
- Income: depending on the scale and the services you provide, this may be taxed as business income rather than as income from house property — which changes the deductions, and removes the 30% standard deduction.
- GST: short-stay accommodation above certain thresholds attracts GST. Ordinary residential letting does not. Take advice.
- If you are an NRI: the TDS and repatriation questions apply, and business income has its own rules.
This is genuinely a different tax animal from letting a flat. Talk to a CA before you start, not at the end of the first year.
Frequently asked questions
What is a service apartment?
A fully furnished residential unit let on a short-term basis with hotel-like services — housekeeping, linen, sometimes reception — marketed as an alternative to a hotel. Increasingly this also describes a flat let on short-stay platforms, which raises the same questions and rather more neighbours' complaints.
Is running a service apartment allowed in a housing society?
Often not. Many societies and associations expressly prohibit short-term letting, commercial use or paying-guest arrangements. And even where they don't, neighbours object — to the strangers, the luggage at midnight, the lift traffic, the security questions. Read the bye-laws BEFORE you buy. This is question one, and if the answer is no, there is no question two.
Are service apartment yields really better?
Gross, yes — substantially. Net is a different business: furnishing (Rs 5-15 lakh, and it wears out), housekeeping between every guest, 15-20% platform commission, utilities you pay, management (which is a job), vacancy, heavy wear and tear, and seasonality. It is a small hospitality business, not a passive rental. Price it as one.
Does a service apartment attract GST?
Short-stay accommodation above certain thresholds does, whereas ordinary residential letting does not. And depending on scale and services, the income may be taxed as BUSINESS income rather than income from house property — which changes the deductions and removes the 30% standard deduction. It is genuinely a different tax animal. Talk to a CA before you start.
What is the biggest risk with a service apartment?
That it gets banned. Ask yourself: if short-term letting were prohibited in this building tomorrow, would this still be a sensible purchase at this price? If yes, the short-let yield is an upside. If no, you are not buying a flat — you are buying a permission, from people who can withdraw it.