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Imagine living in a hotel.
There would always be someone to clean up after you; anything you felt like eating was just a phone call away and when you got home at night someone would have left a thoughtful mint behind on your pillow.
Sounds good right? But, surely the only way that can happen is if you own a hotel and, especially in the current environment, that’s not really a practical purchase.
But, what about owning a hotel room?
Indeed, owning your own hotel room was quite a big thing in the early parts of the decade. It had obvious appeal as a holiday home – none of the cleaning up, among other things – and it could be easily rented out when it was vacant.
So how does it work?
Simply put, a developer builds a hotel but, instead of selling it to a hotel group, he or she sells the individual rooms to private investors as sectional title units. The owners are then entitled to about 30 days worth of hotel living and, for the rest of the time, the room is rented out to paying customers and you, as the owner share in a portion of the proceeds.
According to Greig Fitzell of Suite Satisfraction, the concept originally became popular in the 1990s but flopped because the hotels were passing on profits only once they had taken all their expenses into account, as opposed to only those relating to the actual room rental.
“But,” he says, “In the newer schemes, the operator pays a percentage of the gross room revenue to the investor. This ranges from 25% - 60%.”
Brian Singer of the Singer Group agrees, saying that potential investors should make sure they know what sort of arrangement they are getting into because, as investors they have no control over the hotel’s expenses and, if they are paid out of net profits they could end up not getting a return.
But, while such an investment made sense when the banks were willing to lend you 90% to 100% of the money needed and you could use the income generated to pay off the bond, the question now is whether or not it is as appealing.
Fitzell says the market has tapered off drastically over the last 18 months but, he expects the market to pick up toward the end of the year as people start looking toward 2010.
Some of the more successful recent sales have been the Pezula Resort Hotel in Knysna and The Island Club at Century City and Colosseum Luxury Suites hotel, also at Century City.
Units in the Colosseum, for example, which were mostly sold in 2006, went for R995 000 for a deluxe unit (around 40m2) and just over R1,5m for the larger units.
Now, however, Fitzell says the market is pretty quiet because people are struggling to get financing. Singer agrees, adding, while he is not currently got anything in the market, he would the whole sector is taking some strain.
That said, he is planning to soon bring a number of luxury penthouses in the Colloseum to the market, which he is hoping will fetch somewhere between R10m and R15m each.
Asked where one finds out about potential offers, Fitzell says, the best place to find out about new developments is in property magazines. And, a quick search on the classified site www.gumtree.co.za kicks out an advert for a sectional title unit in a small four-star boutique hotel for a mere R420 000. While the SAInvestment.com is offering a place in its Emerald Point Hotel in Mouille Point for as little as R129 000 for 33m2 suites.
According to Kamil Karrim of Pam Golding’s hospitality division, investors stand to receive a yield of around 10 to 12% once the hotel is established and occupancies are up, so the question becomes: “What are the other options for the money?”
But, he says, if you are looking at it as an alternative to a holiday home then it could well be worthwhile.
“When trying to decide on which way to go, you need to ask yourself, are you really likely to spend more than 30 days a year at the place? If not, a room at a sectional title hotel could well be a good idea.
So how much does it cost?
According to Fitzell, most hotel suite investments cost between R1m and R1,5m and for that you get a 30 to 40 square metre two-person sleeper with an en-suite bathroom.
But, he says, they can produce significant returns. For example, an investment in a suite at the fou- star Misty Valley Game and Trout Lodge in Mpumalanga (one of the developments on offer by his company) is expected to grow by 128% over the next five years.
If, you are, like most of us, still struggling to pay off one house, then I am not convinced the mints on your pillow at night are enough of an incentive to be homeless for the rest of the 330 odd days of the year.
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