From Hawaii to Hainan, hotel rooms are investments

Hotels are popular investment vehicles overseas, and some do use a time-share model, property agents confirmed onTuesday, in the wake of the Apex Horizon hotel controversy.

Antonio Wu, executive director of Asia investment services at agency Colliers International, said hotel investments were common in the United States, Europe and Canada.

"Hawaii is one of the most popular places and [there] hotel rooms are sold for time-sharing purposes," said Wu. "For example, those who buy shares in a hotel room from a hotel operator can stay in the operator's hotels across the country for a short period. But the buyers would not own the title of the property."

Denis Ma On-ping, local director of the Greater Pearl River Delta Research at agency Jones Lang LaSalle, said investments in hotels were usually for the long term, but could also vary.

"We have seen examples where the contract period is for up to 99 years, in places like Thailand," he added.

Some hotels offer guaranteed rental yield in the initial years.

"Rental yields also vary but are usually guaranteed for the first two years and then depend on the performance of the hotel. We have seen guaranteed yields of up to 8 to 10 per cent," Ma said.

He said investors could usually use the property for up to one month per year.

"Though time-sharing is the most common investment method, we have also seen some hotels 'sold' on an individual room basis in countries such as the United Kingdom, Canada and Australia. In these instances, the investor usually acquires an interest in the property - usually over a very long period, up to 999 years in some instances - and then leases the property to a hotel operator," Ma added. "In these cases, we have seen rental yields of up to 6 per cent guaranteed over the first five years. Investors may also have the option for guaranteed use of the property, typically up to one month per year, or receive compensation of a slightly higher yield."

On the mainland, Andy Lee Yiu-chi, chief executive for southern China at property agency Centaline China, said hotel investments were common on Hainan Island three years ago, as the investment market was very active at that time. But the market had turned quiet after the mainland government released cooling measures in the property market during the last two years.

He said hotels on Hainan Island were developed by local companies and targeted the mid-end market.

"The developers would offer a 5 to 8 per cent guaranteed yield in the first five years. But they would mark up the price to cover their costs. The sales were strong when the project was released in the market. But it is uncertain whether the buyers could continue to enjoy a high rental yield after the guaranteed period ended," he added.