Hotel property rise

Private Property South Africa
David A Steynberg

Hotels are big business – and they come with expenses. But if we said you could earn a net rental yield of R900,000 next year, wouldn’t you read on?

Buying a hotel room for personal use may be gaining steam of late, but is by no means a new form of property investment. In earlier years share schemes were all the rage in South Africa, with no fixed asset ever purchased or owned by private buyers. However, for the last decade or so, a second type of purchasing arrangement has become increasingly popular, with those in the know saying it’s the next big thing in the property market.

According to Ian Slot, managing director, Seeff Atlantic Seaboard and City Bowl, hotel apartments with added five-star extras such as room service and restaurants, a gymnasium, and concierge and cleaning services increase the property’s attractiveness for discerning buyers and investors looking for a convenient, chic lock-up-and-go lifestyle. Slot says these properties are typically bought with a dual purpose in mind. “While many of the units are bought for own use, they are also good investments. Some, for example, come with the opportunity to capitalise on rental income.”

Slot cites the three 100m2 Circa Luxury Apartment Hotel units on Cape Town’s foreshore as an example of an excellent investment opportunity. Each of the Circa properties is being marketed for just under R10m, and a unit owner can expect to yield a net rental income of approximately R900,000 over the next year, delivering a yield of 10%.

Another exceptional investment opportunity in Cape Town is the five-star Pepperclub Hotel & Spa. Popularity of the Pepperclub is driven by the excellent amenities on offer, such as 24-hour security and concierge services and that Pepperclub connects directly to Long Street via a private courtyard.

Sales at the Pepperclub have increased over the last year, but units remain affordable, representing an excellent investment opportunity. “Apartments in the hotel still offer exceptional affordability with units selling for upwards of R1,05m for a 34m2 unit with one bedroom, to R1,48m for 67m2,” says Slot. “Even at the top end, a luxury two-bedroomed unit situated on the 18th floor, with spectacular city and mountain views, is only selling for about R6,49m. It is an exceptional investment opportunity and, according to Seeff agents Jason Paans and Warren Emett, comes with a guaranteed two-year lease.”

However, Lew Geffen, chairman, Lew Geffen Sotheby’s International Realty, cautions buyers to do their research before deciding to buy.

It needs to be a carefully chosen and considered hotel apartment investment, though, because management costs can eat into profits and some rental minimums aren’t guaranteed.

If carefully chosen, investing in a hotel apartment can yield significant rental income. Excellent location factors can also translate into stable inherent capital value for the buyer, which improves the attractiveness for the discerning investor.

This article originally appeared in Neighbourhood, Sunday Times.


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