Can Chototel’s US$ 2 hotel solve the world’s housing crisis ?
“Tackling India’s Affordable Accommodation Crisis”
Affordable rental housing is in short supply in many large cities worldwide. Rising rents and house prices are fuelling housing poverty, resulting in an ever-growing number of people living in substandard housing. Such places lack access to adequate sanitation and clean drinking water, among other necessities. In Greater Mumbai itself, out of the 2,830,000 lakh households, 40% reside in slums (Praja.org, 2014). Additionally, there are 15,274 homeless families in the city forced to live in precarious conditions by the roadside, railway platforms and under fly-overs. Within the next 20 years, the population is expected to reach 1.5 billion (Census of India. 2011), further entrenching the problem.
A UK-Based Start-up, Chototel, is taking on the global housing shortage and has chosen India for its first location. Chototel is building a 240-room super-budget hotel near Mumbai. With rents starting at Rs.100 per day, the hotel will provide guests with clean, comfortable accommodation and uninterrupted utilities. Click here to read the full News While social benefits are the main focus of the organization, Chototel’s operations will also ensure environmental benefits. These benefits include a reduced carbon footprint across construction and operations, as well as an efficient water and waste treatment system.
What’s the buzz then?
The first project in Nagothane is expected to welcome its first guests at the end of June this year. Using innovative technology to manage tasks previously reliant on manpower, the first hotel will have just 24 employees for its 240 rooms. Alongside the hotel rooms which will each be equipped with internet access, cable TV and uninterrupted utilities, the guests at Chototel’s first hotel will also benefit from a primary health centre onsite, a landscaped garden and walking trail, a children’s crèche and play area, a community kitchen and a festival plaza
The team is currently working on plans to expand to Chakan, Ankleshwar, Hyderabad, Chennai& Bangalore in India. They are also looking at sites in Bristol in the United Kingdom and Ajman in the UAE. Chototel aims to build around 100,000 rooms in the next 5 years.
Key Service Aspects:
- An inexpensive industrial style dry construction methodology; can be assembled onsite
- The use of an ‘Off-grid closed-loop utility system’, where electricity, gas and water are generated on site from natural resources and recycled waste.
- The use of Internet of Things (IoT) technology to automate functions of check-in, security, tracking of utility consumption, billing, real-time transfer of money, reporting and analytics
- A unique financing system that yields market returns to investors, while offering affordable rentals to the urban poor due to low operating costs.
Interaction with Rhea Silva (Managing Director & CEO)
Ques: How did the name “Chototel” come about?
Ans. “Chototel” is formed from the words “Choto”, meaning small in Japanese and Hindi, and hotel. It was first conceived while having a barbeque in London, and was the suggestion of one of my Japanese friends. We wanted to position Chototel as a hotel, which gives people a sense of arrival and excitement. The name explains our concept: Chototel is a hotel which provides accommodation at a very small price.
Ques: What was main inspiration behind launching Super-Budget hotels? Why did the company choose India for its first pilot project?
Ans. Chototel was conceived out of a need to provide good quality, dignified housing solutions in a market is failing to address the global housing shortage. The demand for affordable housing solutions became clear to me whilst living in India, and seeing the effects of rapid urbanisation first-hand. In India, 28% of urban households are substandard, a percentage rivalled by only that of China globally. This reality represents a tragic failure on the part of urban planners. The concept of the super-budget hotel, positioned between social renting and affordable housing, as an ideal solution to this shortage came from my experience working in both the affordable housing and hotel sectors.
We chose India for our first location because it is the world’s fastest growing economy and has the smallest urban population with respect to the overall population. India’s 1200 million people are all moving towards the urban clusters and they will need accommodation until they can eventually buy a home. India was ripe with opportunity considering the sheer demographics and its underdeveloped rental housing sector.
Ques: Real estate is a very tough market for new players in India – what will be your source of fund?
Ans. Real Estate is a tough market anywhere in the world because it is not a very easily scalable or a technologically-driven sector. Right now, we have invested our own capital for our project, which is what we are using to build the hotel. Once our project is complete and people are living there, we will go and seek external sources of funding.
Ques: What is the business model of Chototel? How will you scale the business?
Ans. In terms of the revenue model or business model, there are two types of revenue from the hotel. The first type of revenue if that which we will receive from daily rental yields. The second form of revenue is from services, such as the Crèche and community kitchen. We will also receive income from the utilities that we generate i.e. water, electricity and gas. The money that we receive from utilities and services is used to run the hotel. For scaling the business, we will coordinate with international developers with local expertise.
Ques: Have you started getting room reservation inquiries from industry workers/ Homeless people or any NGO? How will it be ensured that they are the intended beneficiaries?
Ans. Yes, we have received the acknowledgment from our customer base and other groups have visited the property to support us. We have informed the HR departments of the major factories around our hotel about our initiative and they are excited. We cannot ensure the socioeconomic background of our guests, so we will not discriminate between our guests rather focus on offering a solution they need.
Ques: What is the Go-To market strategy?
Ans. The housing market has a uniquely viral way of spreading good news or bad news. Once local workers are aware of the product we expect them to speak about it to their colleagues in the workplace.
Ques: What are the key value propositions for institutional investors in chototel’s project?
Each security is, in this case, a 290 sq.ft furnished house, at a cost of US$ 10,000 complete with social & municipal infrastructure. Chototel, as the asset manager, applies a fee on dividend whenever paid out to investors. Additionally, the value of the security appreciates when the market value of the house increasesRentals are market driven. Investors benefit from both rental and asset appreciation. Because rents are electronically collected, investors can be paid on a daily basis, further improving their yields. Chototel presents a high social impact project, which provides returns on par with other market opportunities. These high returns will encourage more investors and help scale projects.
Ques: In your opinion, what will be the measure of the success of this initiative?
Ans. Our real challenge is scale. If we have the support of the markets & governments it is possible to really expand this business. We will really be measuring ourselves 5 to 10 years from now. This is a core brick and mortar asset heavy business.
Ques: Could you share the difficulties faced in setting up the processes for a social entrepreneurship venture especially in a changing Indian political climate?
Ans. Honestly, the system was cleaner and more encouraging than we expected. “India is changing rapidly, particularly the way in which government perceives the business. The government is aware of the supply gap in this sector and is working to fill this shortage”
Ques: Any words of wisdom/Advice for young entrepreneurs?
Ans. When you’re in the battleground of business, your gender, colour and religion doesn’t matter. If you want to stay alive and be victorious what matters is tenacity, fortitude, agility and a desire to get up and fight again. This desire is the difference between success and victory.
On completion, the Nagothane Chototel will be a 240-unit hotel with each unit providing 290 sq. ft. of accommodation containing a furnished multi-purpose room, a kitchenette, a mezzanine bedroom and a shared balcony. Additionally, each unit will be Wi-Fi enabled, fitted with a television set, two sofabeds, a dining table and standard electrical and bathroom fittings. The Nagothane Chototel is expected to provide uninterrupted utilities and clean water, as well as social infrastructure such ascrèches and community kitchens to ensure that children, the elderly and other non-working members of a household can be cared for.
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